Bilateral Trade and Strategic Rivalry

Authors

DOI:

https://doi.org/10.7336/academicus.2023.28.09

Abstract

Conflict is a costly endeavor. However, conflict itself is of unobservable magnitude which makes statistical inference problematic. The long-run economic cost of conflict is calculated as the sum of the contemporaneous costs and the discounted value of future costs. Typically, researchers use War or Militarized Interstate Conflicts as independent, discrete events to calculate its contemporaneous effect and then introduce a time binary variable to estimate the lagged effects since the end of the event. The conflict datasets accurately recognize the dates of the core conflict. However, they ignore the possibility that a lack of militarized conflict does not necessarily mean that issues have been settled, thus we are underestimating overall costs.

The present study estimates the economic costs of rivalry. The international rivalry cycle is a process in which a pair of states create and sustain a relationship of atypical hostility for some period. This paper is part of the renaissance of research activity in the applied economics of international trade. The gravity model is used to determine the economic cost of Rivalry on bilateral trade using panel data.

At the aggregate level, strategic and enduring rivalries have a negative and significant effect on trade flow. The results show that the total effect of rivalry accounts for48%-57% of the fall in bilateral trade volume, which is equivalent in cost to 19% of the ad-valorem tax. If the rivalry is disaggregated by claim type: spatial, positional, and mixed, then we observe that the cost varies substantially with the type. Spatial rivalry explains 16%-26% of the fall in trade volume, while positional and mixed rivalry explain 49%-57% and 77%-82%, respectively.

Keywords:

cost of conflict, rivalry, gravity model,

Downloads

Download data is not yet available.

References

  1. Alesina, A. & Spolaore, E., 2003. The size of Nations. Cambridge, Massachusetts: The MIT Press.

  2. Anderson J. E., & Van Wincoop, E., 2004. Trade costs. Journal of Economic literature, 42(3), 691-751.

  3. Aumann, R. J. & Lloyd, S. S., 1994. Long-Term Competition, A game theoretic Analysis. En: Essay in game theory. New York: Springer, pp. 1-15.

  4. Bennett, S., 1996. Security, Bargaining, and the End of Interstate Rivalry. International Studies Quarterly, 40, pp. 157-184

  5. Bercovitch, J., & DeRouen Jr, K., 2008. Enduring internal rivalries: A new framework for the study of civil war. Journal of Peace Research, 45(1), 55-74.

  6. Blomberg, S. B. & Hess, G. D., 2006. How much does violence tax trade?. The Review of Economic and Statistics, 88(4), pp. 599-612.

  7. Brecher, M., 1984. International crisis and protracted conflicts. International interactions, 11(3-4), 237-297.

  8. Disdier, A.C, & Head, K., 2008. The puzzling persistence of the distance effect on bilateral trade. The Review of Economic and statistics, 90(1), 37-48.

  9. Esteban, J., Flamand, S., Morelli, M. & Rohner, D., 2018. A dynamic Theory of Secession. Center for Economic Studies and ifo Institute (CESifo), Volumen CESifo Working Paper, 7257.

  10. Fearon, J. D., 1995. Rational Expectation for War. International Organization, 49(3), pp. 379-414.

  11. Gancia, G., Ponzetto, G. A. & Ventura, J., 2020. Globalization and Political Structure. National Bureau of Economic Research.

  12. Gardeazabal, J., 2010. Methods for measuring aggregate costs of conflict.

  13. Glick, R. & Taylor, A. M., 2005. Collateral Damage: Trade Distruption and the economic impact of war. National Bureau of Economic Research.

  14. Goertz, G. & Diehl, P. F., 1995. The initiation and Termination of Enduring Rivalries: The impact of political Shocks. American Journal of Political Science, 39(1), pp. 30-52.

  15. Helpman, E., 2011. Understanding Global Trade. Cambridge, Massachusetts: The Belknap Press of Harvard University Press.

  16. Hirschman, A. O., 1969. National Power and the Structure of Foreign Trade. First ed. Berkeley and Los Angeles: University of California Press.

  17. Hirshleifer, J., 1995. Theorizing about conflict. UCLA Department of Economic, Volumen Working Paper 727.

  18. Holsti, K. J., 1995. War, Peace and the State of the States. International political science review, 16(4), 319-339.

  19. Keohane, R. O. & Nye, Jr, J. S., 2012. Power and Interdependence. Fourth Edition ed. New York: Pearson.

  20. Klein, J. P., Goertz, G. & Diehl, P. F., 2006. The new Rivalry Dataset: Procedures and Patterns. Journal of Peace Research, 43(3), pp. 331-348.

  21. Limao, N. & Venables, A. J., 2001. Infrastructure, geographical disadvantage, transport costs, and trade. The world bank economic review, 15(3), 451-479

  22. Maoz, Z., 2006. Network polarization, network interdependence, and international conflict, 1816-2002. Journal of Peace Research, 43(4), 391-411.

  23. Martin, P., Mayer, T. & Thoenig, M., 2008. Make Trade not War?. Review of Economic Studies, 75(1), pp. 865-900.

  24. Polachek, S. W., 1980. Conflict and Trade. Crossroad, 5(1), pp. 119-151.

  25. Polachek, S. W., Robst, J. & Chang, Y.-C., 1999. Liberalims and Interdependence: Extending the Trade-Conflict Model. Journal of Peace Research, 36(4), pp. 405-422.

  26. Rose, A.K. 2004. Do we really know that the WTO increases trade? American economic review, 97(1), 98-114.

  27. Thompson. W., Colaresi M., & Rasler, K., 2007. Strategic Rivalries in World Politics. Position, Space and Conflict Escalation. First ed. New York: Cambridge University Press

  28. Vasquez, J.A., 1983. The tangibility of issues and global conflict: A test of Rosenau’s issues area typology. Journal of Peace Research, 20(2), 179-192.

Downloads

Published

2023-07-17

How to Cite

Dishkant, K. (2023) “Bilateral Trade and Strategic Rivalry”, Academicus International Scientific Journal. Vlora, Albania, 14(28), pp. 142–168. doi: 10.7336/academicus.2023.28.09.