Bilateral Import, Export, and Conflict/Cooperation Simultaneity

A mathematical model of dyadic trade and the level of political conflict/cooperation is developed and empirically tested. The model extends the literature in three ways. First, the bilateral trade quantities and the level of conflict/cooperation are simultaneously determined. Second, the commonly used unitary state actor is replaced by a government, an exporter, and an importer in each country in a dyad. Third, action-reaction conflict/cooperation dynamics are incorporated into the model. The model predicts that the effect of bilateral trade quantity on conflict/cooperation and the effect of conflict/cooperation on the monetary value of trade may be positive or negative, whereas the effect of conflict on trade quantity will be negative. These predictions depend on certain conditions, heretofore unrecognized in the literature. The empirical test employs statistical methods, and the results generally support the model's predictions. Overall, this paper suggests that contemporary trade and conflict theories may miss important elements, pointing out the need for richer, more microfounded models.