Conflict, Cooperation, and Commerce: The Effect of International Political Interactions on Bilateral Trade Flows

Abstract

The public choice approach to political economy is employed to gain insight into the connection between international politics and trade flows. A model is constructed in which importers are assumed to be rational utility maximizers who seek to satisfy international security as well as economic welfare objectives. This model of bilateral trade flows reflects contemporary theory in the field of international economics, and it explicitly incorporates the general foreign policy orientation of importers among its determinants. The model is tested in 16 annual crosssectional estimations (1960-75) for a complete network of 25 countries. The findings show considerable support for the hypothesis that trade flows are significantly influenced by broad political relations of amity and enmity between nations. The author concludes that nations adjust trade ties to satisfy security as well as economic welfare goals and that a formal political economy of trade should reflect this fact.