Economic Interdependence: A Path to Peace or a Source of Interstate Conflict?

Abstract This article investigates the long-standing liberal hypothesis that trade ties facilitate interstate peace. Rather than assuming that trade will always promote peace, the author highlights the need to consider both the nature and context of economic linkages in assessing whether such ties are more likely to dampen or amplify interstate conflict. The study encompasses a diverse group of dyadic relationships for the period 1870-1938, 14,341 dyad years, and includes 270 militarized interstate disputes and 14 wars. After controlling for the potentially confounding influences of contiguity, regime type (joint democracy), relative capabilities, and alliance commitments, the author finds evidence that economic linkages have a dramatic influence on whether or not dyads engage in militarized disputes, but no influence on the occurrence of wars. Rather than inhibiting conflict, extensive economic interdependence increases the likelihood that dyads will engage in militarized interstate disputes. Peace through trade is most likely to arise among dyads composed of mutually dependent trading partners. Even then, the relationship between interdependence and conflict appears to be curvilinear, where low to moderate degrees of interdependence reduce the likelihood of dyadic disputes, and extensive economic linkages increase the probability of militarized disputes. Extreme interdependence, whether symmetrical or asymmetrical, has the greatest potential for increasing the likelihood of conflict.