Doctoral Dissertation Research in Political Science: Rational Expectations, International Trade, and Interstate Conflict

Florida State University, Tallahassee FL

Investigators

Abstract

International conflict scholars often focus on the farsighted behavior of states involved in military conflict. Those analyzing the relationship between international trade and interstate conflict argue that greater interdependence among a pair of states increases the costs of military conflict, reducing the incentive for state leaders. to engage in conflicts with trade partners. But until recently researchers did not attribute the same level of strategic sophistication to the economic actors involved. Morrow (1999) suggests a rational expectations approach to the study of trade and conflict. He argues that traders are rational actors who develop expectations about interstate conflict from the political relationships between states. Other scholars find partial empirical support for this claim. This Doctoral Dissertation Research Support project advances the study of trade and conflict further by incorporating rational expectations of conflict into a gravity model of bilateral trade flows. The Ph.D. student examines the question of how conflict influences international trade both directly when violence occurs, and indirectly through the expectations of conflict that trading firms develop. In this proposal, bilateral trade levels are the result of market behavior by firms, but conflict between or within states influences the economic forces that determine trade. The student uses the gravity equation to explain trade flows based on purely market forces and argues that conflict affects these market forces, changing the level of bilateral trade in the process. The idea that conflict affects trade is then extended by assuming that firms develop rational expectations about future conflicts. The student argues that expectations of conflict will also affect the market for traded goods. Moreover, he extends this argument to suggest that factors associated with recurrent conflict between the same states will increase expectations of a future conflict. This results in hypotheses about the effects of rivalry, conflict over territory, and imposed regime changes on trade between states and the student develops a research design that tests these hypotheses on post-war bilateral trade. Broader Impact This project has more general implications for those in the economics/security discipline and those in policy-making circles. A rational expectations approach to the study of trade and conflict could have significant implications for the liberal-trade brings peace proposition.