Militarized Conflict, Trade, and Economic Development in a Structural Equation Model With Spatial Considerations

Abstract

While conflict pervades virtually every aspect of society, there have been relatively few crossovers between Regional Science and Peace Science. This paper pays tribute to Walter Isard, pioneer of peace science research, and Kieran Donaghy, who has contributed to research on arms race dynamics and macroeconomic stability. We review studies that examine the impact of (i) trade on conflict, (ii) the economy on militarized disputes, and (iii) conflict on economic development. The analysis develops a structural equation model (SEM) to test the hypotheses simultaneously using the Correlates of War project data. Consistent with the liberal proposition, we found that the pacifying effect of trade is robust across alternative SEM specifications. Controlling for standard explanatory variables, the SEM estimates reveal that the indirect impact of economic development on conflict mediated by trade is statistically significant at the 0.1-percent level. Trade is, therefore, a critical intervening variable that transforms conflict-inducing economic expansion into a pacifying influence on militarized disputes. The spatial version of the SEM confirms that democracies do not attack each other. While trade does not appear to have a local spillover effect on conflict, proximity to neighboring democracies does lead to fewer conflicts. The final hypothesis argues that conflict affects national economic performance, which Donaghy refuted in his 1995 Conflict Management and Peace Science paper. Consistent with Donaghy’s finding, the estimates reject the claim that conflict disrupts economic stability. The conclusion section discusses the implications for Kieran Donaghy’s larger body of work.

Militarization, globalization and liberal democracy: a nexus?

“…As Gartzke and Lupu (2012) note, the issue of whether interdependence, as fostered and promoted by the multifaced process of globalization, facilitates the resolution of differences between states via diplomatic channels rather than through confrontation and conflict, has implications in terms of the policies pursued in the international system. As the results of Mansury et al (2023) indicate, trade has a pacifying effect. This renders support to the underpinning idea of the "Wandel durch Handel" policy mentioned in the introduction.…”

“…Moreover, it reflects countries' integration in the international system. As already pointed out, the question of whether interdependence encourages states to resolve differences through diplomatic means rather than through conflict, is a theme that has attracted substantial theoretical and empirical attention in the extant literature ( inter alia : Mansury et al., 2023; Gartzke and Lupu, 2012; Hegre et al., 2010; Kollias and Paleologou, 2017; Solarin, 2018).…”

“…Critically engaging and summarizing this strand of the literature is beyond the scope of the present study. For our purposes here, it suffices to note that this nexus is one of the most studied and debated issues in the relevant theoretical as well as empirical literature (Mansury et al., 2023; Gartzke and Lupu, 2012). Although the reported empirical findings do not allow for firm conclusions as noted by Paganelli and Schumacher (2019), nonetheless most findings point to a positive association between commerce and peace.…”

Russia’s military conflict against Ukraine and its impact on the European Union’s wealth. Can good governance counteract the effects of the war?

“…The results of his study show a significant increase in military expenditures, respectively decrease in net foreign investments (FDI), as well as a deterioration of international trade relations and traditional supply chains that existed prior to the crisis. Moreover, the paper of Mansury et al (2023) demonstrates that an increase in trade openness reduces conflict involvement. The study of Borin et al (2022) goes in the same direction of analysis, quantifying the impact of the restrictive measures and sanctions imposed on Russia upon international trade.…”