Trade Costs, Conflicts, and Defense Spending

Michael Seitz, Alexander Tarasov and Roman Zakharenko

Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems from Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich

Abstract: This paper develops a quantitative model of trade, military conflicts, and defense spending. Trade liberalization between two countries reduces probability of an armed conflict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other countries. As a result, both countries and the rest of the world are better off. We estimate the model using data on trade, conflicts, and military spending. We find that, after reduction of costs of trade between a pair of hostile countries, the welfare effect of worldwide defense spending cuts is comparable in magnitude to the direct welfare gains from trade.

Keywords: general equilibrium; gains from trade; defense spending (search for similar items in EconPapers)
JEL-codes: C5 C6 F13 F51 H56 (search for similar items in EconPapers)
Date: 2013-07-01
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Trade costs, conflicts, and defense spending (2015)
Working Paper: Trade Costs, Conflicts, and Defense Spending (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:trf:wpaper:404

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