Globalization's Peace: The Impact of Economic Connections on State Aggression and Systemic Conflict

The question of whether economic relations have an impact on interstate military conflict has divided scholars and political thinkers since the Enlightenment. Kant claimed that economic interconnectedness among states would contribute to long-term peace in international politics, but since that time consensus has proved illusory, and scholars have taken a diverse array of positions in the debate. Some have claimed that economic connections foster good will and political integration, and that states will be reluctant to risk the benefits of trade through the initiation of conflict; others have insisted that trade has no impact on international conflict; and yet others have argued that trade simply adds to the interstate competition that breeds conflict and war (Maoz 2009, pp. 224-226; Kim and Rousseau 2005).

Moreover, the divide has extended to the way in which students of international relations have perceived historical and current events. Certain historical observers have vilified economic insulation and protectionist policies, such as import barriers, as causes of the 1930s conflicts that produced World War II—the implication being that economic interconnectedness could have prevented the cataclysm by promoting bonds of mutual interest and cooperation (Buzan 1984, p. 610). However, others have pointed to the occurrence of World War I as an indication that economic ties need not promote interstate peace, as a hitherto unprecedented degree of global trade preceded and failed to prevent that conflict (Ferguson 2005).

The concern about the relationship between trade and violent conflict is all the more relevant in the modern era of “globalization.” Economic interconnectedness has increasingly become the norm, with insulation from it a remote exception. In the face of this international reality, a re-examination of the potential impact that these economic ties could have upon international security is more than an academic exercise—it is an endeavor with tremendous policymaking importance, as statesmen have used the prospect of fostering peace as justification for their trade and economic policies.1 This study’s goal is to contribute to the larger study of conflict in this regard. Ideally this research will raise implications and questions such that more scholars can make use of them as they make further breakthroughs in this realm.

International conflict can manifest itself in a number of ways such as “diplomatic protests, hostile propaganda statements, and the breaking of bilateral agreement” (Gasiorowski 1986, p. 25). But military disputes bring an entirely different level of hostility to international politics. It is for this reason that I focus on armed conflict in this paper; an empirical analysis of non-violent interstate conflict using this study’s theoretical framework must be saved for the future.

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The goal of this research is to present a fresh conceptual model and statistical analysis through which the relationship between interstate economic ties and interstate military conflict can be examined, as my model differs from those of previous scholars in key ways. Most of the literature is focused on interdependence among specific countries. That is, dyadic pairings of interdependent partners have received the most attention, with conflict between them seen as a failure of interdependence to prevent it.2 However, direct conflicts with partner states are not the only means by which an aggressive state can “turn off” investors and trading partners. As Maoz (2009, pp. 225-226) notes, states should even be “reluctant to initiate conflict against enemies with whom they do not have direct trade ties because the uncertainty and instability associated with conflict may cause their trading partners to look for other markets” [emphasis mine]. Thus, I use aggression as a means to measure interstate conflict. This study analyzes the impact of a state’s total economic ties with the international system on the likelihood that it will exhibit aggression against any state, as states should fear provoking economic retribution from those states with which they do have direct trading ties. Other scholars have examined systemic rather than dyadic conflict, but they do not systematically analyze the relationship between economic interconnectedness and instances of monadic state aggression in general.3

Ultimately, I find support for the argument that economic ties are conducive to peace. My findings indicate that greater participation in world trade reduces states’ likelihood of aggression, but that greater openness to the inward and outward flow of capital increases state aggression. However, I also find that both types of economic ties tend to limit the scope of conflicts at the systemic level.

In this paper, I begin first by discussing three theoretical perspectives on international relations, their differing predictions for the relationship between economic interconnectedness and interstate conflict, and theoretical explanations that might explain their predictions. A discussion of how my model measures states’ economic connections and aggression, as well as a statistical analysis of the data on sampled countries then follow, along with a discussion of the findings and the conclusions that can be drawn from this study.

Theory and Literature Review

There are a number of perspectives that posit theoretical explanations in the realm of international relations, but this study focuses on three: the liberal, neorealist, and classical realist perspectives (Nau 2009). Each has implications for how international economic ties might impact conflict frequency, and scholars have been able to suggest specific reasons for how each could actually materialize in international relations. Moreover, various empirical studies have supported all three perspectives’ predictions.

Interconnectedness Diminishes Military Conflict—The Liberal Perspective

According to the liberal perspective, international institutions and interdependence (strategic, diplomatic, economic, etc.) are essential to fostering international peace because they provide avenues through which states can cooperate and forge relationships steeped in the mutual trade and security interests. Maoz (2009, pp. 225-226) succinctly summarizes the liberal conjecture: “Global interdependence increases coordination, cooperation, transparency, and trust, thereby reducing global levels of conflict.” Not only does trade promote good will and demand “cooperation,” however; since trade is presumably voluntary and mutually beneficial, states will see their interests in peaceful trade rather than in aggressive conflict—in the words of Buzan (1984, p. 529), trade between states is a means to achieve a “harmony of interest” that will contain conflict (Oneal et al. 1996). The liberals hold that trade brings peace in the international system, an assertion that has been elaborated on through more concrete scholarly theorizing.

First, given that both partners benefit from trade, any government “will avoid starting a conflict, not wishing to cut its own throat” by cutting itself off from vital revenue or resources. In this manner, the “net costs” of conflict are expanded to include not only the costs of war but the deprivation of the benefits of peace (de Vries 1990, p. 429; Gasiorowski 1986, p. 26). Moreover, researchers have also noted the possibility that trading ties “improve communication, reduce misunderstanding,” and promote formal political integration (Barbieri 1996, pp. 30-31). That is, in order to protect and maintain the benefits of trade for both partners, they will seek to ensure that their relationship remains cooperative by establishing formal political mechanisms designed to prevent conflict (Gasiorowski 1986; de Vries 1990). Thus, trade’s impact on states’ cost-benefit calculations and the political integration advanced by economic connections are the primary ways in which interdependence could potentially alleviate the threat of war in international politics.

Interconnectedness May Increase Military Conflict—The Neorealist Perspective

According to neorealist thinking, institutions and interdependence do not create any substantial degree of order in international relations, which is defined by a struggle for power among states. Because of the anarchic nature of the international system, states are forced to be constantly concerned with their security; without a “higher power” (e.g., a superpower state), there is nothing to force cooperation upon states, which must be constantly wary of others’ power. Without a “higher power” (e.g., a superpower state), there is nothing to force cooperation upon states, which must be constantly wary of others’ power. For neorealists, the character of interstate relations at any given time is determined by the distribution of power in the international system, and peace is most secure when power is distributed such that states’ capacities for violence are limited by the power of other states. In this view, states are obsessed with relative power—that is, their capabilities in comparison to those of other countries (Waltz 1979; Mearsheimer 2001; McMillan 1997).

Many neorealists argue that economic interdependence can actually be a source of conflict, rather than a deterrent to it. Because of their concern with relative power, neorealists emphasize that economic interdependence among states can produce asymmetrical relationships in which one state is more dependent than the other on the benefits of trade. These “dependencies” can produce conflict when states feel sufficiently insecure and resentful of the power imbalance; in such circumstances, a minor disagreement could lead to a severing of the dependence through armed conflict, particularly if the more powerful state seeks to use its advantage to exploit the weaker one (Waltz 1979, pp. 138-160; Oneal et al. 1996, p. 13; McMillan 1997, p. 41).

Contrary to liberal assumption that trade is beneficial for all, some scholars emphasize the costs that trade can bring to one or both partners. Gasiorowski (1986, p. 26, 31), for example, notes the negative impact that imports can have (or can at least be perceived to have) on a state’s domestic industries and unemployment, as well as the possibility that trade could transmit inflation. Furthermore, some have maintained that the vulnerabilities produced by economic interdependence can intensify the possibility of conflict as well. If one trade partner depends heavily on its exports for revenue and domestic industry—especially if its exports flow primarily to very few states—or if one partner relies heavily on the importation of a highly valued good, then that state’s trading relationship will be “asymmetrical” and it will play the part of the weaker partner (McMillan 1997, pp. 40-41). In such an unequal relationship, even more than in a more symmetrical one, the states involved are vulnerable to economic coercion in the form of a boycott or an embargo (Gasiorowski 1986, pp. 24, 26). This relative weakness and vulnerability can engender insecurity, hostility, and desires to rectify the power balance through force (Barbieri 1996).

Interconnectedness is Irrelevant to Military Conflict—The Classical Realist Perspective

The neorealist and classical realist perspectives are very much alike, but they differ in their views on the source of the international struggle for power and on the role played by economic power in states’ security calculus. Both perspectives see the international system as anarchic and defined by conflict, but classical realism focuses on the “power impulses” that are unavoidable parts of “human nature.” Whereas neorealists focus on the structure of the international system and the distribution of power in it, and thus argue that states seek power for security and focus on their power relative to others’, classical realists emphasize that states (like humans) have a basic desire to dominate others with their power—an “animus dominandi” (Morgenthau [1948] 1985; Mearsheimer 2001, pp. 1-28). However, not all forms of power matter equally; classical realists hold that military power is the most important (indeed, the only important) means by which states can dominate others (McMillan 1997, p. 40). These realists generally see economic power as a tool of “low politics” (as opposed to the “high politics” of pursuing war or peace) and do not believe that trade and other forms of economic ties have any significant impact on armed conflict. For realists, geopolitical supremacy and military might are states’ overriding priorities; economic relations are merely “transitory arrangements for pursuing national interests” that do not influence decisions to use force (Barbieri 1996, p. 33).

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Unlike the liberal and neorealist perspectives, there is not a wide variety of specific situations which could produce the realists’ predicted relationship; to deny any relationship is, in effect, to deny the possibility of “circumstance.” As a result, the realist perspective is a holistic one, and it is difficult to separate the premise that economic relations are “low politics” from the argument that springs from it. Thus, if this assumption does not hold, then the realist argument falls apart.

This Study’s Theory

This research will provide further empirical evidence regarding how interstate economic ties relate to interstate conflict—a question that is clearly alive and contested. Specifically, I examine the impact that a state’s economic connections have on its likelihood to initiate militarized conflict which, as noted above, has yet to be fully evaluated. The model used in this research is a variant of the liberal one; however, I take the basic logic of the approach one step further. Given that states that are heavily invested in trade are less likely to risk or abandon the benefits of trade through military conflict, I suspect that this rationale can be applied to states in relation to the global economy rather than solely to conflict among economically connected dyads. The logic of this study’s approach is that heavy participants in the global economy will not only seek to avoid conflict with their strong trade partners as much as possible, but will also refrain from aggression against states with which they do not have strong trade connections. This is because aggression could lead to the alienation of those states with which they do have heavy economic ties. In short, this study analyzes the impact of states’ systemic economic connections on the likelihood that they will be aggressive.

For the purposes of this study, I use particular definitions of “economic interconnectedness” and “aggression.” First, I use values of trade and foreign direct investment (FDI) to denote economic connections. Trade is useful because it indicates not only the extent to which a state is reliant upon foreign goods and services as imports, but also how dependent its domestic employment and revenue are on the export of goods to foreign markets. Furthermore, foreign direct investment is a good measure of a state’s reliance on foreign capital (inward FDI) for growth, as well as how much a state is invested in the economies of foreign countries (outward FDI)—and therefore how vulnerable it is to the potential loss of these economic ties if it were to take an aggressive action against another state. Second, I assess how conflict-prone a state is by measuring the extent to which it initiates conflicts in which force is threatened, displayed, or used by one state against another. Thus, a statistical analysis of trade, FDI, and conflict initiation form the backbone of the model—but in order for the model to truly reflect reality, certain criteria must be met.

Four key assumptions underlie my model. The first is that all states will be concerned about not only their geopolitical security interests, but also their economic and financial interests; states will be sensitive to the threat that the benefits of trade or investment could be cut off if they take aggressive action. In this way it runs directly counter to the classical realist assumption, which posits that economic interests should have no impact upon states’ decisions to use force. Second, as may be apparent, this model assumes that states will be aware of the potentially harmful impact that their aggression could have upon their trade or foreign direct investment. This need not mean that states must have perfect information as to the magnitude of their potential losses or the intentions and perceptions of their trading partners, but only that they will consider the possible costs associated with the initiation of conflict. Third, I assume that there exists in international politics a “norm of nonaggression”—that is, that states generally look down upon aggression and that, as noted above, current or potential trading partners may seek to diminish or even cut off economic ties with an aggressive country. Finally, I assume that, as detailed by Maoz (2009), conflict and war’s destabilizing tendencies will be potentially detrimental not only to the trade of the states involved but also to the trade of all states that do business with any of the belligerent parties, owing to the likelihood that commerce will be interrupted—and that investors will be apprehensive—in and around areas of tension or actual warzones. This provides a further economic reason for states to condemn and punish aggression, and thus further diminishes the incentive of a state dependent on trade and foreign investment to initiate a conflict, as states that are heavily dependent on trade and foreign capital will be far more vulnerable to the impact of international economic sanctions than countries that are largely isolated and self-sufficient.

This model has a number of benefits. I treat aggression as a monadic state characteristic, for even though conflict manifests itself through dyads, this study considers any act of aggression on the part of a state to be a failure of its interconnectedness to prevent that conflict. Rather than looking at all the complexity of an economically interdependent relationship between two states, my model assumes that any state’s aggression against any other state will be detrimental to its economic relations with others. Surely this assumption will not hold in all cases; however, for my purposes it is a useful baseline for empirical testing, as I will be able to see whether this assumption is indeed a plausible one. Furthermore, the model’s emphasis on what Gasiorowski (1986, p. 35) calls “‘systemic’ interdependence” is “really preferable” to one on “‘bilateral interdependence.” As he notes, “the expansion of world trade and capital markets has made alternative sources available for most international economic transaction.” For the purposes of this study, the presence of “alternative sources” (i.e., other states outside a dyadic trading relationship) is essential for the functioning of my model’s most important assumption: that, even if an aggressor does not attack one of its direct trading partners, other states that are the aggressor’s trading partners could take action that economically hurts the aggressor state.

Hypotheses

On the basis of this model’s fundamental logic—that states with strong international economic connections are more vulnerable to the disruption of these connections and are thus not prone to risk such a disruption through conflict initiation—I derive three hypotheses: First, that the heavier that a state’s participation in the world economy is, the less likely that should be to initiate a military conflict. Second, that the greater the entire international system’s level of economic connections is, the less aggression overall there should be in the system. Third and finally, that the greater the entire international system’s level of economic connections is, then conflicts that actually are initiated should be less hostile.

The first hypothesis has already been discussed, but the second and third hypotheses also extend the model’s logic. The idea behind the second is that because many countries will have an economic stake in peace, they will oppose aggressors that threaten their current or future partner-states. Given this condition, it stands to reason that the more economically interdependent that states are worldwide, the more likely they will be to have ties with the victim state and the stronger their opposition to aggression will be. As a result, any potential aggressor should be less likely to actually initiate a conflict due to the threat of economic punishment.

Hypothesis 3 follows similar reasoning. Presumably, conflicts that are less intense should be seen as less threatening and destabilizing by foreign states and investors. For this reason, rational aggressor states should be reluctant to escalate a conflict from the level of a threat or display of force to an actual use of force against another state, for fear of inciting an international economic backlash. Thus, I expect to see proportionally fewer instances in which force is actually used compared to instances in which it is only threatened in times of heavy international economic ties.

Ultimately, this model’s central tenet is that states heavily integrated into the global economy have disincentives to take aggressive action against other states by virtue of their dependencies on foreign investment and trade. In the event of a conflict, the aggressor state could very likely face international condemnation and economic sanctions—sanctions that would be particularly punishing if the aggressor’s foreign economic connections were heavier rather than lighter. But, as it stands, the model has yet to face rigorous empirical testing, and thus, in the succeeding pages, its validity will be evaluated and its implications examined.Continued on Next Page »