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International Trade and Transnational Insecurity



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International Trade and Transnational Insecurity How Comparative Advantage and Power are Jointly Determined Michelle R Garfinkel University of California Irvine Stergios Skaperdas University of California Irvine Constantinos Syropoulos Drexel University Current Version May 21 2009 Abstract We augment the canonical neoclassical model of trade to allow for interstate disputes over land oil water or other resources The costs of such disputes in terms of arming depend on the trade regime in place Under either autarky or free trade the larger country in terms of factor endowments need not to be more powerful Yet under free trade there is a stronger tendency for arming incentives to be equalized and thus for a leveling of the playing field Depending on world prices free trade can intensify arming incentives to such an extent that the additional security costs swamp the traditional gains from trade and thus render autarky more desirable for one or both rival states Furthermore contestation of resources can reverse a country s apparent comparative advantage relative to its comparative advantage in the absence of conflict And where such conflict is present comparisons of autarkic prices to world prices could be inaccurate predictors of trade patterns JEL Classification D30 D70 D72 D74 F2 F10 Keywords trade openness property rights interstate disputes conflict security policies The authors wish to thank Michael McBride Priya Ranjan and participants of the CEPR workshop on Conflicts Globalization and Development November 2008 especially Ethan Kapstein for helpful comments and suggestions 1 Introduction Thinking about international trade and trade policy is typically based on models that assume perfectly and costlessly enforced property rights Especially in transnational settings however where there is no ultimate authority to enforce property rights countries expend resources on their defense and diplomacy in order to secure their borders and interests or to put it differently



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