No FDI impact.

This indicates that the increase of economic interdependence does not lead to a decrease of the interstate conflict as captured by defense expenses. On the contrary the increase of exports of country 1 to country 2 leads to an increase of the expenses of both countries. Hence, both countries seem to consider the conflict as vivid even though some trade activity is built. This may be attributed to the fact that the defense expenses of these countries are not necessarily related to the particular interstate conflict with the investigated pair in the dyad. It could also be due to the fact that the economic crisis has potentially led to a decrease of both the economic activity and the defense expenses in some cases. This explains partially the results. Furthermore, country 1 is not always the stronger economy. In addition, it is not necessarily the country that has initiated the conflict. These findings indicate that the topic needs to be further investigated so as to incorporate more dyads and potentially additional proxies of interstate conflict and economic interdependence in order to realize whether the latter impacts the former.

[Table omitted]

The impact of the independent variables and their explanation is summarized in Table 4.

In political terms, policymakers may find these empirical results interesting as they show that they cannot rely solely on the strengthening of bilateral trade in order to end or reduce the conflict. In addition, according to other studies, establishing a free trade area may be the way for fostering economic ties and interdependence with potential rivals, however, it will be difficult to have a critical impact on conflict if this cannot happen in bilateral level without any degree of economic integration. Therefore, we cannot expect, at least for the mentioned cases, de-escalation or elimination of the conflict caused by increased economic activity between the rivals. Therefore, other routes need to be explored so that an interstate conflict can be reduced or eliminated through trade.

6. Conclusions and Further Research

In the present analysis, a study of the impact of economic interdependence on interstate conflict was attempted with the use of a sample that consisted of three dyads of countries facing a similar context of interstate conflict: India-Pakistan, Russia-Ukraine and Yemen-Saudi Arabia. The results show that only exports from country 1 to country 2 have an impact on the level of defense expenses either for country 1 or for country 2. This indicates that economic interdependence does not necessarily reduce interstate conflicts, since both countries 1 and 2 increase the defense expenses even though exports from country 1 to country 2 increase. Our contribution in the current literature relies upon the correlation between defense expenses and bilateral trade and is in the direction of the research of Seitz et al. (2015). There has been a big diversity of dependent variables employed in the relevant studies, such as trade expectations (Copeland, 1996), common interests (Li and Sacko, 2002), interaction between domestic politics and the international system (Kapstein, 2003), income ratio (Martin et al., 2008), Preferential Trade Agreements (Herge et al., 2010; Long, 2008), trade (Barbieri and Levy, 1999; Long and Leeds, 2006), Militarized Interstate Disputes (MIDs) (Copeland, 1996; Oneal and Russett, 1999; Gartzke et al., 2001; Powers, 2004; Martin et al., 2008; Li and Reuveny, 2011). As all studies, it has certain limitations that primarily stem from data availability; three dyads where analyzed and certain proxies were used. Consequently the results depend purely on the span of the dataset. Our future research venues include the extension to additional dyads to more variables that are relevant to the interstate conflict as well as the economic interdependence, provided data become available. Furthermore, as indicated by the anonymous reviewers, it is worth investigating whether the strength of defense can affect the mutual trade of two countries. In addition, as recommended by the anonymous reviewers it would be interesting to apply game theoretical approaches in order to establish the hypotheses around economic interdependencies prior to the investigation of the correlation of the latter to the interstate conflict.