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The geography of conflicts and free trade agreements

Author

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  • Martin, Philippe
  • Mayer, Thierry
Abstract
We analyze the interaction of economic and political determinants of free trade agreements (FTA). In addition to standard trade gains, FTAs can promote peaceful relations by offering a political forum and by increasing the opportunity cost of conflicts that disrupt trade. If policy makers believe in such pacifying effects of FTAs, country-pairs with large trade gains from FTAs and high probability of conflict are more likely to sign a FTA. Using data on the 1950-2000 period, we show that this complementarity between economic and political gains is at work in the geography of FTAs. Country pairs characterized by a high frequency of old wars - which we use as a proxy of the probability of conflict - are shown to be more likely to sign FTAs, the more so the higher the trade gains from a FTA. These trade gains are estimated by a theory-driven empirical strategy to disentangle them from the political factors. We also show that, contrary to old wars, recent wars make it more difficult to negotiate a FTA. This suggests the existence of windows of opportunity to lock-in FTAs and peace. Finally multilateral trade openness, because it reduces the opportunity cost of a bilateral conflict, increases the political incentive to sign FTAs.

Suggested Citation

  • Martin, Philippe & Mayer, Thierry, 2010. "The geography of conflicts and free trade agreements," CEPR Discussion Papers 7740, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:7740
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    References listed on IDEAS

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    12. Philippe Martin & Thierry Mayer & Mathias Thoenig, 2008. "Make Trade Not War?," Review of Economic Studies, Oxford University Press, vol. 75(3), pages 865-900.
    13. Antoni Estevadeordal & Caroline Freund & Emanuel Ornelas, 2008. "Does Regionalism Affect Trade Liberalization Toward Nonmembers?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(4), pages 1531-1575.
    14. Egger, Peter & Larch, Mario, 2008. "Interdependent preferential trade agreement memberships: An empirical analysis," Journal of International Economics, Elsevier, vol. 76(2), pages 384-399, December.
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    17. Baier, Scott L. & Bergstrand, Jeffrey H., 2007. "Do free trade agreements actually increase members' international trade?," Journal of International Economics, Elsevier, vol. 71(1), pages 72-95, March.
    18. Carrere, Celine, 2006. "Revisiting the effects of regional trade agreements on trade flows with proper specification of the gravity model," European Economic Review, Elsevier, vol. 50(2), pages 223-247, February.
    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Baldwin, Richard & Jaimovich, Dany, 2012. "Are Free Trade Agreements contagious?," Journal of International Economics, Elsevier, vol. 88(1), pages 1-16.
    2. Enrico Spolaore, 2013. "What Is European Integration Really About? A Political Guide for Economists," Journal of Economic Perspectives, American Economic Association, vol. 27(3), pages 125-144, Summer.
    3. Enrico Spolaore, 2014. "The Political Economy of European Integration," Discussion Papers Series, Department of Economics, Tufts University 0778, Department of Economics, Tufts University.
    4. Marco Fugazza & Frédéric Robert-Nicoud, 2014. "The “Emulator Effect” of the Uruguay Round on US Regionalism," Review of International Economics, Wiley Blackwell, vol. 22(5), pages 1049-1078, November.
    5. Jose Jaime Baena-Rojas & Susana Herrero-Olarte, 2020. "From Preferential Trade Arrangements to Free Trade Agreements: One of the Downturns of Cooperation in International Relations?," Social Sciences, MDPI, vol. 9(8), pages 1-17, August.
    6. Maryam Asghari & Elham Oliagard, 2017. "Trade and National Security: A Test for Best-Known Hypothesis," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 21(2), pages 403-431, Spring.
    7. Harada, Kazuhiro & Habib, Muhammad & Sakata, Yumi & Maryudi, Ahmad, 2022. "The role of NGOs in recognition and sustainable maintenance of customary forests within indigenous communities: The case of Kerinci, Indonesia," Land Use Policy, Elsevier, vol. 113(C).
    8. Avinash Dixit, 2011. "International Trade, Foreign Direct Investment, and Security," Annual Review of Economics, Annual Reviews, vol. 3(1), pages 191-213, September.
    9. Vicard, Vincent, 2012. "Trade, conflict, and political integration: Explaining the heterogeneity of regional trade agreements," European Economic Review, Elsevier, vol. 56(1), pages 54-71.
    10. Lan, Xiaohuan & Li, Ben, 2011. "Nationalism and international trade: theory and evidence," MPRA Paper 36412, University Library of Munich, Germany, revised 03 Feb 2012.
    11. Florian Mölders, 2012. "On the Path to Trade Liberalization: Political Regimes in International Trade Negotiations," Discussion Papers of DIW Berlin 1245, DIW Berlin, German Institute for Economic Research.

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    More about this item

    Keywords

    Free trading arrangements; Trade; War;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F15 - International Economics - - Trade - - - Economic Integration

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