Globalization and wartime trade
| Date | 01 June 2020 |
| Author | Nizan Feldman,Tal Sadeh |
| Published date | 01 June 2020 |
| DOI | 10.1177/0010836719896613 |
| Subject Matter | Articles |
https://doi.org/10.1177/0010836719896613
Cooperation and Conflict
2020, Vol. 55(2) 235 –260
© The Author(s) 2020
Article reuse guidelines:
sagepub.com/journals-permissions
DOI: 10.1177/0010836719896613
journals.sagepub.com/home/cac
Globalization and wartime
trade
Tal Sadeh and Nizan Feldman
Abstract
This article argues that on balance globalization does not increase, and may even reduce, the
opportunity cost of Militarized Interstate Disputes (MIDs), as measured by foregone merchandise
trade. Specifically, globalization makes it easier for states to substitute trade partners, makes
it difficult to employ trade sanctions, makes credit more available to states at conflict, and
encourages trade-substituting horizontal Foreign Direct Investment (FDI) and sanctions-resilient
vertical FDI. Hypotheses are supported using High Dimensional Fixed Effects regression, applied
to a Gravity model, with two-way clustering of standard errors, and an analysis of the effect of
globalization on the marginal effect of MIDs on international trade. This suggests that while wars
are becoming infrequent in recent decades, due to other factors, trade’s contribution to peace
is diminishing.
Keywords
globalization, gravity equation, interstate conflict, trade
Introduction
In the past few decades, the Liberal school in studies of conflicts and peace has gained
influence, arguing classically that trade and globalization promote peace because trading
states pay high opportunity costs by engaging in trade-obstructing hostilities against each
other. Efforts to examine this proposition have produced a large number of quantitative
studies, which mostly found that international trade and investments pacify relations
between the partners.1 Other studies maintain that trade and other forms of economic
interaction enable states to send costly signals – actions through which they demonstrate
their resolve to assume the costs and use force without the need to actually use it (Gartzke
et al., 2001; Gartzke and Li, 2003b; Kinne, 2014).2 In addition, social networks form, in
which trade rerouted through third-party states (those that are not directly engaged in the
conflict) makes conflicts less likely (Dorussen and Ward, 2010; Gartzke and Westerwinter,
2016; Kinne, 2012; Lupu and Tragg, 2013; Maoz, 2009; Poast, 2010).3
Corresponding author:
Tal Sadeh, School of Political Science, Government and International Affairs, Tel Aviv University, P.O. Box
39040, Tel Aviv 69978, Israel.
Email: talsadeh@tauex.tau.ac.il
896613CAC0010.1177/0010836719896613Cooperation and ConflictSadeh and Feldman
research-article2020
Article
236 Cooperation and Conflict 55(2)
Whether by opportunity cost, signaling or networks, all of these studies associate
more trade or trade links (as an independent variable) with a smaller likelihood, or fre-
quency of armed conflict (as a dependent variable).4 This proposition has motivated
research into the effects that war (as an independent variable) may in turn have on trade
(as a dependent variable). A negative relationship would validate the opportunity cost
argument (stopping the conflict may revive trade), as well as the network mechanism
(stopping the conflict is in the interest of many third-party states). Indeed, a number of
studies document a decline in trade between opposite sides in Militarized Interstate
Disputes (MIDs).5 In contrast, evidence on the effects of conflicts on trade with third-
party states, which in aggregate may be greater by value than trade between opponents,
is mixed. Some studies document an overall decline in wartime trade with third-party
states,6 while other studies emphasize the resilience of trade with third parties to conflict,
because of substitution for lost trade with enemy states and third parties (Martin et al.,
2008),7 and strategic interests (Feldman and Sadeh, 2018; Gowa and Hicks, 2017).
However, no study has so far examined how the externalities that globalization generates
may affect the trade of even relatively less globalized participants in armed conflict.8
This study contributes to the literature by arguing in the next section that while some
effects of economic globalization increase the opportunity cost of MIDs to trade (between
combatant states as well as with third-party states), other effects create an environment
that reduces the costs of conflict, in addition to but also independently of the belligerent
states’ particular policies. In brief, economic globalization makes it easier for states to
substitute trade partners and obtain credit during conflict, and harder to employ trade
sanctions. The declining frequency of interstate wars in recent decades may be due to a
rise in other costs, such as the costs and destructive power of military technology, and the
opportunity cost of trade in services (which may not be sensitive to the effects of globali-
zation discussed in this article). Clearly, non-economic aspects of globalization connect
people by making them and their ideas more mobile, promoting social communication
and mutual understanding, and making values more compatible across borders (Dorussen
and Ward, 2010; Russett and Oneal, 2001). Alternatively, change in the international
power structure may account for recent infrequency of wars. However, if our results are
correct, economic globalization’s contribution to peace is diminishing.
The third section sets out the research design. We use a directed dyadic dataset of over
1.1 million trade observations, which consists of almost all of the states and most of the
years since 1970; by distinguishing exports from imports, it allows better control for
omitted variables. In the fourth section, we test our hypotheses and support our argument
with High Dimensional Fixed Effects regressions with two-way clustering of standard
errors, applied to a Gravity model. We use the results of the regressions to analyze the
effect of globalization on the marginal effect of wars on international trade. The fifth
section provides conclusions.
Globalization and the cost of armed interstate conflict
While the literature cited above studies the relationship between conflict and trade, glo-
balization is obviously a multi-faceted phenomenon that goes beyond trade. We focus on
three particular processes because they are highly typical of globalization and highly
To continue reading
Request your trial