Trade disruptions are existential---interdependence reduces likelihood of militarized disputes and arms racing.

Hoon Lee, Toby J. Rider, “Evaluating the Effects of Trade on Militarized Behavior in the Context of Territorial Threat,” Foreign Policy Analysis, Vol. 14, Issue 1, January 2018, https://academic.oup.com/fpa/article-abstract/14/1/44/2625527?redirectedFrom=fulltext

Empirical Results

Table 1 presents the results of a probit regression analysis on whether increasing trade (inter)dependence reduces the likelihood of militarized disputes over territory, river, or maritime claims (ICOW, Models 1 and 2) and territorial claims (Huth and Allee Models 3 and 4). All results are reported using two-tailed significance tests and robust standard errors. As described earlier, we limit our sample to only those pairs of states that have an ongoing issue claim over a territorial, maritime, or river border. Hypothesis 1 predicts that increasing trade (inter)dependence in an issue claim dyad will reduce the probability of militarized disputes over the issues at stake. This relationship is expected based on a number of proposed mechanisms: increased opportunity costs, improved signaling/information, or discouraged hawkish foreign policies.

The results of our analyses (Table 1, all Models) are consistent with expectations predicting that both trade interdependence and trade dependence will decrease the likelihood of militarized dispute. In Models 1 and 3, trade interdependence is negative and significant (p ¼ .007 and p ¼ .01, respectively). Models 2 and 4 are consistent with expectations as well; trade dependence reduces the likelihood of MID onset (p ¼ .005 and p ¼ .013, respectively).20 Additional analyses using any MIDs as the outcome, instead of MIDs specifically over the issue claim in question, are consistent with the results in Table 1 (see Table 3A in the Appendix).

Figure 2 reports substantive change in the probability of MID onset across different levels of trade (inter)dependence. All four graphs are consistent with expectations—the likelihood of MID onset declines as trade (inter)dependence increases. More concretely, we find that a one standard deviation increase in trade interdependence reduces the probability of a militarized dispute by 26.9 percent in the ICOW sample (Model 1) and 21.2 percent in the Huth/Allee sample (Model 3).21 We also find that a one standard deviation increase in trade dependence reduces the probability of a militarized dispute by approximately 45.9 percent in the ICOW sample (Model 2) and 20.9 percent in the Huth/Allee sample (Model 4). These results support the expectations of Hypothesis 1, positing that increased trade (inter)dependence reduces the probability of militarized disputes. Combined with Lee and Mitchell (2012), the implication is that liberal peace propositions are robust to particularly salient issues like territorial stakes (Lu and Thies 2010).22

Hypothesis 2 postulates that increasing trade (inter)dependence reduces the probability that countries with a geopolitical issue claim will engage in arms competitions. We present in Table 2 the results of our analysis on arms race onset using the claim-dyad sample population.23 Again, the results reported in Table 2 support our expectation (Hypothesis 2) that increasing trade (inter)dependence within claim dyads reduces the probability of arms race onset. Across all models, we find that both trade interdependence and trade dependence are negatively correlated with arms race onset, statistically significance at p < .001. Figure 3 shows that the predicted probability of arms race onset decreases as trade (inter)dependence increases. In terms of substantive impact, a one standard deviation increase in trade interdependence reduces the probability of an arms race by 62.2 percent in the ICOW sample (Model 1) and 51.7 percent in the Huth/Allee sample (Model 3). A one standard deviation increase in trade dependence reduces the probability of an arms race by 64.1 percent in the ICOW sample (Model 2) and 80.6 percent in the Huth/Allee sample (Model 4).

Theoretically, we argue that arms buildups and resulting arms races are a product of uncertainty over either the target state’s ability to compete or levels of resolve. If trade reduces uncertainty, we would expect trading states to be less likely to engage in arms competitions. Additionally, if arms competitions risk disrupting trade relations, states may be reluctant to risk engaging in a buildup. Overall, the findings presented in Table 2 are consistent with the expectations posited in Hypothesis 2—interdependent trading states are less likely to engage in arm races.