Bilateral Trade and International Interactions: The Impact of Third-Party Blocs on Political Conflict and Cooperation

Abstract

The trade-conflict model claims that two parties, designated the ”actor” and the ”target”, protect their gains from trade by enhancing cooperation and decreasing conflict. This paper extends the trade-conflict model to garner implications concerning trade and conflict interactions where third parties are involved. The theoretical propositions supported by proofs are: (1) if the actor increases trade with a third-party who is a friend of the target, then the actor will reduce conflict towards the target; (2) if the actor increases trade with a third-party who is a rival of the target, then the actor will increase conflict towards the target. A 30-couniry sample from the Conflict and Peace Data Bank (COPDAB) is used and divided into three blocs, namely, a Western bloc, a Middle Eastern bloc, and an Eastern bloc, to represent the three parties. The empirical analysis supports the hypotheses. A similar relationship is also discussed and tested for situations in which conflict increases or decreases between the actor and the third-party bloc. In addition, the evidence shows that the Western bloc countries play a central role in world political and economic relationships.