The current literature exploring the commercial institutional peace, while
on conflict tendencies. First, the majority of the current literature places all economic agreements into the “black box” of preferential trade agreements (PTAs). In reality, economic agreements differ greatly in scale and scope. There is a vast difference, for example, between NAFTA and the European Union in both stated and realized goals. Furthermore, those works that do account for institutional design make linear
assumptions such that an increase in the depth/scope of an agreement yields more peace. There is no a priori reason, however, to believe that the influence of agreements is uniform or even linear across all types. In the extreme, some agreement types may encourage peace while others conflict. This is particularly important given the noted potential of international commercial exchange to influence domestic power dynamics (Hiscox 2001). For example, asymmetrical agreements, which are more common in shallow institutions (Fernandez 1996, 8), may encourage domestic forces to look on such arrangements as detrimental in the short- or long-term.
Second, the current literature considers primarily bilateral trade and its influence of conflict. Consequently, empirical studies to date interact the presence of an agreement with bilateral trade as the primary driver of conflict within commercial agreements (with the exception of Vicard, who does not use any interaction terms). However, the utility of economic agreements is not necessarily limited to bilateral interactions. Greece, for example, may not trade as much with Portugal as with Italy. They still may be dissuaded from engaging in conflict with Portugal, however, if it risks expulsion from the EU and losing preferential trading rights with Italy. Given the diverse influences integration, a more comprehensive analysis of costs is warranted.
A third potential contribution to the literature on economic integration and conflict is less a criticism than an extension of existing works. Much of the integration literature to date rightfully addresses intra-group dynamics, or how member states interact with one another. Formal economic integration, however, impacts not only intra- member relations, but also relations with the external world. Trade diversion and the incentives agreement members have to raise external barriers likely influence the decision-making calculus of states excluded from the agreement. In short, looking only at trade diversion, conflict may actually be more likely between agreement members and non-members owing to the reduced importance of extra-agreement trade. In other words, formal economic integration marginalizes the external world. This is likely to be
exacerbated to the extent that regionalism begets regionalism in a “falling domino” fashion. That being said, while barriers may reduce trade, they provide strong incentives to invest in an agreement area to avoid implicit discrimination. Consequently, while it is likely that agreements influence relations between members and non-members, the exact nature is difficult to determine.
A fourth and final shortcoming of the commercial institutional peace literature is a broader criticism of conflict literature and a potential area of improvement. Conflict studies are extraordinarily well versed at predicting when war does not take place.
Democracies, highly developed states, economically interdependent states, and allies tend not to engage each other militarily. While this is no doubt an important avenue of
research, such studies say little about what states actually do. “War” and “not war” are generally explored without consideration given to alternative means of conflict
resolution. If states have a strong motivation to avoid war, by what means do they resolve interstate conflicts?
Economic integration agreements provide a unique “natural experiment” of sorts whereby alternative conflict resolution mechanisms gain effectiveness. In other words, policies short of militarized conflict can be substituted to achieve foreign policy goals (Most and Starr 1984, 1989). In particular, sanctions – either positive or negative – should be more effective, and therefore employed more often, between economic agreement members. First, economic interdependence between member states, realized or otherwise, may increase the effectiveness of non-violent coercion. Second,
institutional structures are more likely to survive bouts of sanctioning given the ability of such tools to be tailored to specific situations. Third, the formal organization offered by an economic agreement may allow for coordinated action. Finally, the bargaining power and market potential of an economic agreement may increase the appeal of positive sanctions. The observable outcome of this dynamic may be increased sanctions usage, both positive and negative, by agreement members corresponding to decreases usage of militarized conflict.
Questions about the effect of agreements on conflict and the substitutability of foreign policies – either separately or jointly – cannot be addressed without carefully considering the relationship between economic and security relations. In this project, I pursue a framework that carefully considers the overall impact economic agreements have on international relations. Economic agreements can have impacts well beyond the states immediately involved in it. Consequently, I include not only intra-agreement dynamics in my analysis, but also the extent to which agreements impact the broader
regional and global economy. Likewise, the multitude of foreign policy options available to states requires a careful analysis of alternatives and their strategic interplay. It is important to appropriately model the relationship between economic sanctions and military force – both theoretically and empirically – in order to truly understand how states pursue the conflict process. In the following chapter, I present a framework that addresses these factors. Conflict between states is in part a consequence of their
economic relationship. Specifically, formal economic agreements influence the salience of trade ties in ways that affect the relatively utility of economic sanctions and military force in resolving disputes. Ultimately, therefore, conflict behavior is in part a
consequence of the policy options made available by economic circumstances and relations between states.
Without Economic Agreements
Prices With Alpha-Bravo Economic Agreement
CHAPTER 3
E
CONOMICA
GREEMENTS ANDI
NTERSTATEC
ONFLICT:
D
ISPUTEI
NITIATION ANDP
OLICYS
UBSTITUTIONWhile the extant literature on interdependence suggests a strong role for commercial institutions in reducing conflict, the economic processes they promote are multifaceted and complex. This complexity in turn suggests a more nuanced and
comprehensive view of economic agreements in shaping state behavior. First, economic agreements are highly heterogeneous in depth and scope. Different levels of economic integration incorporate policies that may exhibit unique and non-linear influence on interstate conflict. Second, economic agreements do not exist in a vacuum and, indeed, may have strong influences on commerce beyond intra-agreement ties. There are
important reasons to believe the formation of an economic agreement influences strategic relationships with non-member states. Finally, one of the posited causal mechanisms behind the pacifying effect of economic interdependence is the substitutability of
economic sanctions for military force. Only a handful of studies, none of which address economic agreements specifically, consider the relationship between war and economic sanctions as policy options (see Clark and Reed 2005 for a noteworthy exception). In principle, economic agreements provide the ideal circumstances with which to observe the use of militarized and economic conflict. Members of economic agreements establish clear or formal commitments to increase interdependence and exchange. Within this
participants that should obviate the need for military conflict. Agreements, therefore, provide an opportunity to evaluate these claims.
Below, I develop a theory that embraces the complexities of economic agreements and how they influence conflict between members and non-members. Economic
agreements confer material benefits on member states that, in turn, alter their relationship with those within and outside the agreement. The nature and extent of material benefits, furthermore, are dependent upon the structure of economic relations between states in the agreement. This is determined by the institutional mechanisms present in the agreement and the natural trade patterns between states as determined by geography, population, development, and other factors. Furthermore, in order to evaluate the ability of economic agreements to engender peace, the complete range of interactions between states must be taken into account. While agreements may reduce tensions between members, the economic forces it sets in motion may stimulate or exacerbate tensions between members and non-members.
I examine the relationship between economic agreements and interstate relations (or conflict) by using a combination of verbal and formal theory. First, I consider a variety of theoretical arguments about the impact of economic agreements on the initiation of conflict. I use the term “conflict” in this section to refer to policy disagreements between states that are sufficient enough to compel some degree of coercive action. Following the theoretical review, I develop a formal bargaining model using the logic of policy substitution to explore the means by which states engage in conflict. While agreements influence whether states initiate conflict, they also influence the tools states use as coercive instruments. Consequently, in discussing the bargaining
model, I frequently refer to coercive policies as the phenomenon being explained. I draw hypotheses from both a non-formal model of conflict and a formal bargaining model for empirical testing in subsequent chapters about how economic agreements influence conflict.