Economic Interdependence and International Interactions

Abstract

This article is an empirical analysis of the relationship between economic interdependence and international third-party interactions. When countries seek to protect their trade gains, the trade-conflict model predicts that trade reduces conflict between pairs of countries, designated the ‘actors’ and the ‘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: (1) if the actor increases trade with a third party who is a friend of the target, then the actor will reduce conflict toward 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 toward the target. A similar relationship is also discussed and tested for situations in which conflict increases or decreases between the actor and the third party. The empirical results of tests using a 30-country sample from the Conflict and Peace Data Bank (COPDAB) generally support the derived hypotheses. Trade increases communication and promotes peace between states. According to the implications of structural balance theory, the imbalance in a triadic relationship can be resolved by international trade. Thus, increased world trade will give effect to the maxim: ‘a friend of a friend is a friend’.