TITLE:
A Financial Analysis Approach on the Impact of Economic Interdependence on Interstate Conflicts
AUTHORS:
Victoria Pistikou, Eftychia Tsanana, Thomas Poufinas
KEYWORDS:
Bilateral Trade, Defense Expenses, Dyads, Economic Interdependence, Financial Analysis, Interstate Conflict
JOURNAL NAME:
Theoretical Economics Letters,
Vol.11 No.5,
October
11,
2021
ABSTRACT: There is a long-standing debate on whether economic
interdependence can have an impact and play a crucial role in diminishing
interstate conflict. Two schools of thought advocating two opposite beliefs
regarding this debate are Realism and Liberalism. The former suggests that
economic interdependence does not necessarily promote peace, whereas the latter
trusts that it does. According to Liberalism, there is a direct connection
between trade and conflict, in other words, between economic factors and
security issues. On the contrary, Realists argue that what applies to the
international system also applies to trade policy; hence economic cooperation
among states has a limited effect when it comes to national security issues.
This study attempts to shed light on this debate, i.e. whether bilateral
economic relations can affect interstate conflict. To achieve that it uses a
theoretical framework derived from the disciplines
of international political economy enhanced with a quantitative-financial analysis that employs a series of econometric models in order to identify
macroeconomic variables that have an impact on the interstate conflict. Three
dyads of countries that have recorded interstate conflict are employed
(India-Pakistan, Russia-Ukraine and Yemen-Saudi Arabia). The defense expenses
are used as a proxy of interstate conflict, whereas the imports and the exports
from one country to the other are the variables that capture the economic
interdependence. Evidence is found that exports have a positive impact on
defense expenses. This means that economic interdependence does not necessarily
lessen interstate conflict, which can be useful at the hands of policymakers.