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Trade Costs, Conflicts, and Defense Spending

Author

Listed:
  • Seitz, Michael
  • Tarasov, Alexander
  • Zakharenko, Roman
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.

Suggested Citation

  • Seitz, Michael & Tarasov, Alexander & Zakharenko, Roman, 2013. "Trade Costs, Conflicts, and Defense Spending," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 404, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
    • Handle: RePEc:trf:wpaper:404
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    References listed on IDEAS

    as
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    Full references (including those not matched with items on IDEAS)

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    Cited by:

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    2. Ali Dadpay & Saleh S. Tabrizy, 2021. "Political Agreements and Exporting Activities: An Empirical Assessment of the Effects of the JCPOA Agreement on Iran’s Exports," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 63(1), pages 147-180, March.
    3. Albalate, Daniel & Bel, Germà & Mazaira-Font, Ferran A. & Ros-Oton, Xavier, 2024. "Paying for protection: bilateral trade with an alliance leader and defense spending of minor partners," Journal of Economic Behavior & Organization, Elsevier, vol. 223(C), pages 234-247.
    4. Vincenzo Bove & Claudio Deiana & Roberto Nistic�, 2018. "Global Arms Trade and Oil Dependence," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 34(2), pages 272-299.
    5. Garfinkel, Michelle R. & Syropoulos, Constantinos & Yotov, Yoto V., 2020. "Arming in the global economy: The importance of trade with enemies and friends," Journal of International Economics, Elsevier, vol. 123(C).
    6. Khan, Hidayat Ullah & Rehman, Leena & Khan, Alam & Khan, Hameed, 2021. "Economics of Armed Conflicts and Governance: An Empirical Study Focusing on South Asia," Asian Journal of Applied Economics, Kasetsart University, Center for Applied Economics Research, vol. 28(2).
    7. João Jungo, 2024. "Institutions and economic growth: the role of financial inclusion, public spending on education and the military," Review of Economics and Political Science, Emerald Group Publishing Limited, vol. 9(3), pages 298-315, April.
    8. Christos Kollias & Suzanna-Maria Paleologou, 2017. "The Globalization and Peace Nexus: Findings Using Two Composite Indices," Social Indicators Research: An International and Interdisciplinary Journal for Quality-of-Life Measurement, Springer, vol. 131(3), pages 871-885, April.
    9. Christos Kollias & Suzanna Maria Paleologou & Panayiotis Tzeremes & Nickolaos Tzeremes, 2018. "The demand for military spending in Latin American countries," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 27(1), pages 1-17, December.

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    More about this item

    Keywords

    general equilibrium; gains from trade; defense spending;
    All these keywords.

    JEL classification:

    • C5 - Mathematical and Quantitative Methods - - Econometric Modeling
    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F51 - International Economics - - International Relations, National Security, and International Political Economy - - - International Conflicts; Negotiations; Sanctions
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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