Contents

Regionalism and Conflict: Peace Creation and Peace Diversion

Hadjiyiannis, Costas / Heracleous, Maria S. / Tabakis, Chrysostomos

Abstract

We investigate the implications of preferential trade agreements (PTAs) for interstate conflict. We set up a two-stage game with three competing importers, where first, two of the countries decide on whether to initiate war against each other, and subsequently, all three countries select their import tariffs. We show that PTAs produce both a "peace-creation" effect and a "peace-diversion" effect, whereby they reduce the likelihood of conflict between member countries (peace creation), but render the eruption of war between member and non-member countries more likely (peace diversion). This paper is the first to identify and explicitly model the peace-diversion effect of PTAs, and is also the only one in this literature to endogenize countries' terms of trade. We use data from the Correlates of War project to empirically test these predictions, and after controlling for endogeneity, we find robust evidence of both peace creation and peace diversion in relation to PTA establishment.

Issue Date
2016-09
Publisher
ELSEVIER SCIENCE BV
Keywords(Author)
Preferential trade agreements; Regionalism; Military conflict; War
Citation
JOURNAL OF INTERNATIONAL ECONOMICS, v.102, pp.141 - 159, 2016
DOI
10.1016/j.jinteco.2016.07.001
Journal Title
JOURNAL OF INTERNATIONAL ECONOMICS
Start Page
141
End Page
159
ISSN
0022-1996
Language
English
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