The Legacy of Conflict on Trade Negotiations

Abstract

The world has witnessed an unprecedented proliferation of regional trade agreements (RTAs) since the early 1990s, which has prompted a heated debate among trade economists and policymakers about the implications of RTAs for the multilateral trading system. Besides the standard economic gains from regional integration, RTAs can produce significant political gains for their member countries, chief among which is the reduction in interstate conflict between RTA members (peace-creation effect). Thus, depending on the RTA in question, economic integration and peace solidification can both occupy center stage on the agenda of the prospective RTA partners during the trade negotiations, affecting their duration. It is well known that the duration of negotiations across RTAs differs substantially, but this phenomenon has not received much attention in the literature. In this paper, we explore for the first time the legacy of past conflict on RTA negotiations. Using a unique dataset on the history of formation of a large number of RTAs (Tabakis and Zanardi, 2018) as well as data on conflict from the Correlates of War project and by employing survival analysis techniques, we found that country pairs with history of conflict conclude their trade negotiations relatively faster—1.5 to 2.2 times faster in comparison with country pairs with no history of conflict. The result has implications for firms’ investment decision and the role of politics in RTAs negotiation.