Economic Interdependence and International Interactions: The Impact of Third - Party Trade on Political Conflict and Cooperation

Abstract

This article presents an empirical analysis of the relationship between economic interdependence and international third-party interactions. If countries seek to protect their trade gains, the tradeconflict model predicts that trade reduces conflict between pairs of countries, designated “actors” and “targets”. 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 as follows: (1) Increasing trade by an “actor” with a third party will decrease conflict with a “target”, if the third party and target are “friends”, who already have a negative level of mutual conflict. (2) Increasing trade with a third party will increase conflict with a target, if the third party and target are “rivals”, having a positive level of mutual conflict. A similar relationship is also discussed and tested if conflict increases or decreases between the actor and third party. The empirical results of tests using a 30-country sample from the Conflict and Peace Data Bank (COPDAB) generally support the hypotheses. Trade increases communication between states and promotes peace. Therefore, according to the implications of structural balance theory, the imbalance in a triadic relationship can be resolved by international trade. Thus, increasing world trade will give positive effect to the maxim: “a friend of a friend is a friend”.