Persistent Patterns of International Commerce
| Author | Michael D. Ward,Peter D. Hoff |
| DOI | 10.1177/0022343307075119 |
| Date | 01 March 2007 |
| Published date | 01 March 2007 |
| Subject Matter | Articles |
157
Introduction
There is longstanding interest in understand-
ing international commerce and its relation-
ship with international conflict. The Journal
of Peace Research has published a series of
important articles analyzing the effect of con-
flict on international commerce, including
Barbieri (1996), Barbieri & Schneider (1999),
Polachek, Robst & Chang (1999), Oneal
& Russett (1999), Dorussen (1999, 2002),
Morrow (1999), Hegre (2000, 2002), Barbieri
& Levy (1999, 2001), Anderton & Carter
(2001a,b), Long (2003), Gartzke & Li (2003),
and Goenner (2004), among others.
It is well recognized and generally accepted
that conditional on a variety of local and global
contexts, countries will have levels of bilateral
commerce roughly proportional to their com-
bined share of the global market, but inversely
proportional to their distance from one
another.This idea is known as the gravity model
and stands at the core of modern understand-
ing of the patterns of international commerce
(Feenstra, Rose & Markusen, 2001): countries
© 2007 Journal of Peace Research,
vol. 44, no. 2, 2007, pp. 157–175
Sage Publications (Los Angeles, London, New Delhi
and Singapore) http://jpr.sagepub.com
DOI 10.1177/0022343307075119
Persistent Patterns of International Commerce*
MICHAEL D. WARD
Department of Political Science, University of Washington
PETER D. HOFF
Departments of Statistics and Biostatistics, University of Washington
The authors examine a standard gravity model of international commerce augmented to include politi-
cal as well as institutional influences on bilateral trade. Using annual data from 1980-2001, they esti-
mate regression coefficients and residual dependencies using a hierarchy of models in each year. Rather
than gauge the generalizability of these patterns via traditional measures of statistical significance such
as p-values, this article develops and employs a strategy to evaluate the out-of-sample predictive strength
of various models. The analysis of recent international commerce shows that in addition to a typical
gravity-model specification, political and institutional variables are important. The article also demon-
strates that the often-reported link between international conflict and bilateral trade is elusive, and that
inclusion of conflict in a trade model can sometimes lead to reduced out-of-sample predictive perfor-
mance. Further, this article illustrates that there are substantial, persistent residual exporter- and
importer-specific effects, and that ignoring such patterns in relational trade data results in an incom-
plete picture of international commerce, even in the context of a well-established framework such as
the gravity model.
* We appreciate the comments of Janet Box-Steffensmeier,
Nils Petter Gleditsch, Kristian Skrede Gleditsch, Brian
Pollins, and Indra de Soysa on an earlier version of this
manuscript, as well as the helpful comments on behalf of
JPR by reviewers and Håvard Hegre. Peter Hoff’s research
was partially supported by Office of Naval Research grant
N00014-02-1-1011. Hoff and Ward were also supported
by a grant from the Methods, Measurement, and Statistics
Program at the National Science Foundation, grant
number SES-0417559. The data used in this article and a
web appendix can be found at http://www.prio.no/jpr
/datasets. Correspondence to mdw@u.washington.edu.
with large economies have a lot of trade with
each other, especially if they are neighbors. A
gravity model can typically explain about one-
half the variation in bilateral international com-
merce and is widely considered a benchmark if
not the gold standard. However, few political
economists believe that international com-
merce occurs absent the friction and lubrication
created by individuals, firms, and institutions
which are not represented completely by size
and distance alone. Thus, discerning the addi-
tional forces that affect international commerce
has been an important item in this longstand-
ing research agenda.
As a result, many scholars have introduced
into the gravity model a variety of factors
thought to affect the bilateral flow of goods
and services. Following the pioneering works
of Williamson (1985) and North (1990),
scholars have focused on a wide variety of
international as well as domestic institutions
that affect the bilateral level of commerce.
Such institutions are those that are thought
to provide accountable, stable, corruption-
free, and effective governance, especially in
so far as they provide an enforceable legal
framework. Recent work by De Groot et al.
summarizes these findings in the sphere of
the domestic political economy:
Wefind that [domestic] institutional quality has
a significant, positive and substantial impact on
bilateral trade flows. The same goes for similar
quality of governance. These results support the
hypothesis that institutional variation is an
important determinant of informal barriers to
trade. The positive correlation between income
per capita and quality of institutions gives rise to
an explanation of why high-income countries
trade disproportionately amongst each other,
while the same does not hold for low-income
countries. Generally good governance lowers the
transaction costs for trade between high-income
countries, while trade between low-income
countries suffers from high insecurity and trans-
action costs. (De Groot etal., 2004: 119)
Rose (2004a,b, 2005a,b, 2006) has carefully
investigated whether and which international
organizations may provide similar positive
benefits for international commerce, find-
ing that many well-worn adages about the
international institutions are, if not simply
wrong, certainly more nuanced than previ-
ously thought. Rose’s work is hard to sum-
marize, but he finds that not all international
organizations have substantial nor similar
impacts on international commerce. Indeed,
the impacts of the GATT/WTO and IMF
are generally quite small and often nega-
tive, while the impact of membership in the
OECD is both substantial and positive (Rose,
2005b: 692).
But incorporating domestic and interna-
tional institutions does not tell the entire story
of international commerce. Does interna-
tional collaboration spill over into the eco-
nomic realm beyond what an augmented
standard gravity model predicts? One per-
plexing claim is whether political cooperation
and conflict have substantial impacts on inter-
national commerce. There is a considerable
lineage of studies that show that international
political conflict attenuates bilateral com-
merce and that international cooperation pro-
motes it. For example, Barbieri (1996) and
Barbieri & Levy (2001) find that trade is not
necessarily diminished by war among trading
partners, but Anderton & Carter (2001a,b)
find evidence that war often interrupts inter-
national commerce at the bilateral level. Many
scholars believe that since democracies are
thought to have less conflict with one another,
this will have positive externalities upon their
bilateral commerce. Bliss & Russett (1998)
argue, for example, that private actors in
democratic states will prefer commerce with
partners also in democratic states because
democracies rarely go to war with one another
and the attendant risk ratio of having business
interrupted by international conflict is very
low. Since democratic societies are viewed as
less threatening in the foreign policy domain,
international commerce with partners in
democratic societies will rarely be viewed as
journal of PEACE RESEARCH volume 44 / number 2 / march 2007
158
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