Trade costs, conflicts, and defense spending

Seitz, M., Tarasov, A. and Zakharenko, R. (2015) Trade costs, conflicts, and defense spending. Journal of International Economics, 95(2), pp. 305-318. (doi: 10.1016/j.jinteco.2014.11.013)

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This paper develops a quantitative model of trade, military conflicts, and defense spending. Lowering trade costs between two countries reduces probability of an armed conflict between them, causing both to cut defense spending. This in turn causes a domino effect on defense spending by other countries. As a result, both countries and the rest of the world are better off. We estimate the model using data on trade, conflicts, and military spending. We find that, after reduction of costs of trade between a pair of hostile countries, the welfare effect of worldwide defense spending cuts is comparable in magnitude to the direct welfare gains from trade.

Item Type:Articles
Glasgow Author(s) Enlighten ID:Zakharenko, Dr Roman
Authors: Seitz, M., Tarasov, A., and Zakharenko, R.
College/School:College of Social Sciences > Adam Smith Business School > Economics
Journal Name:Journal of International Economics
ISSN (Online):1873-0353
Published Online:06 December 2014

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