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Trading with the Enemy

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  • Michelle R. Garfinkel

    (Department of Economics, University of California-Irvine)

  • Constantinos Syropoulos

    (Department of Economics and International Business, Drexel University)

Abstract

We analyze how trade openness matters for interstate conflict over productive resources. Our analysis features a terms-of-trade channel that makes security policies trade-regime dependent. Specifically, trade between adversarial countries reduces their incentives to arm given the opponent's arming. If they have a sufficiently similar mix of initial resource endowments, a move to trade brings with it a reduction in resources diverted to conflict and thus wasted, as well as the familiar gains from trade. Otherwise, a move to trade can induce greater arming by one of them and thus need not be welfare improving for both. Moreover, when the two adversarial countries do not trade with each other but instead trade with a third (friendly) country, a move from autarky to trade intensifies conflict between the two adversaries. Building on the welfare implications, we also analyze the endogenous choice of trade regimes.

Suggested Citation

  • Michelle R. Garfinkel & Constantinos Syropoulos, 2015. "Trading with the Enemy," Working Papers 151603, University of California-Irvine, Department of Economics, revised Sep 2017.
    • Handle: RePEc:irv:wpaper:151603
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    File URL: https://www.economics.uci.edu/research/wp/1516/15-16-03.pdf
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    References listed on IDEAS

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    Cited by:

    1. Mehrdad Vahabi, 2020. "Introduction: a symposium on the predatory state," Public Choice, Springer, vol. 182(3), pages 233-242, March.
    2. Martin C. McGuire, 2020. "Trade and the predatory state: Ricardian exchange with armed competition for resources—a diagrammatic exposition," Public Choice, Springer, vol. 182(3), pages 459-494, March.
    3. Yang-Ming Chang & Manaf Sellak, 2019. "A game-theoretic analysis of international trade and political conflict over external territories," Public Choice, Springer, vol. 179(3), pages 209-228, June.
    4. Martin McGuire, 2017. "Introduction and Notes to Garfinkel-Syropoulos: "Trading with the Enemy"," Working Papers 171802, University of California-Irvine, Department of Economics.

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    More about this item

    Keywords

    Resource insecurity; Interstate disputes; Conflict; Trade openness; Comparative advantage;
    All these keywords.

    JEL classification:

    • D30 - Microeconomics - - Distribution - - - General
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F10 - International Economics - - Trade - - - General
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism

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