Chapter 2: Trade and Conflict (and Vice Versa)
2. Trade and Conflict (and Vice Versa) Economists often neglect the political dimension when they analyse the economic relations between countries. Their domain pre-eminently is international trade, capital flows, the transfer of technology and the coordination of macroeconomic policy, in sum the whole area where cooperation among countries yields higher welfare for all. One wonders whether this abstraction in the analysis is desirable.1 Relations between countries are just as unlikely to be permanently harmonious as personal relationships. Conflict seems to be a radical characteristic of human activity. Disregard of this dimension may yield deceptive results in the analysis of the international economic system. Still, textbooks on international economics hardly deal with the impact of politics on international trade and investment patterns. Indeed it is difficult to find a textbook that warns the student of international economics that to ‘attempt analysis of a specific international issue solely in economic terms is liable to result in some very silly conclusions’ (the caveat is from Schiavo-Campo, 1978, pp. 7–8n). Admittedly, this quote is a bit outdated, but (and this is the point) it is still accurate as is the description of the neglect of politics by mainstream economics (see also Strange, 1998) This chapter reviews earlier findings on the theoretical and empirical relationships between, on the one hand international trade and investment, and on the other hand international conflict and co-operation. The focus is on the influence exerted by the diplomatic climate on foreign trade, but we will also look into the...
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