Scientific Essay, 2012, 30 Pages
1.1 Globalization, Trade and Conflicts
2.0 Trade and divergence
2.1 Defining Peace: A Trade Theory Perspective
2.2 Responsibility for Peace: A Lifelong Peace - Notions of a Stable Balance
2.3 How Trade impacts on Conflict and Cooperation
3.0 Economics Model of the “Peace-Through-Trade” Liberal Hypothesis
3.1 Extensions of the Conflict-Trade Model
3.2 Foreign Direct Investment (FDI)
4.0 Game-theory: Signaling Models
5.0 Observations from the Trade-Conflict Model Regarding the Democratic Peace
Global peace is an ideal form of freedom, peace, harmonious atmosphere, and happiness among and within all nations and/or peoples. To other scholars, world peace is a utopian idea of planetary non-violence by which nations willingly cooperate, either voluntarily or by virtue of a system of governance which prevents warfare.
Some new theories and issues concerning promotion of global peace are going on in the world today. Rather than world trade being dependent on world peace, as in the past, world peace and harmony may be influenced and brought nearer to reality through burgeoning world trade unlike in the past theories where trade was a function of global peace. In this paper we argue that peace is the function of trade, that is to say that trade brings about peace. Hence being the beacon, of peace. Recent studies have developed this theme in the modern days. Here we condense and analyze various studies on this issue, into this article. It is common knowledge that global commerce thrives well during peacetime but here we argue that global peace thrives better during enhanced global trade. We should also understand the important role that trade and international marketing play in actually producing and procuring peace as a catalyst. International trade brings individuals and various entities together through the motivation of doing business interaction. And, all this interaction yields not just the mutual gain associated with business relationships – it also creates personal relationships and mutual understanding. These are the foundations of global peace and prosperity. In the modern times most theorists believe that "peace is the natural effect of trade,” however, a number of economists and political scientists firmly espouse the notion that trade among nations leads to peace. If political conflict leads to a diminution of trade, then at least a portion of the costs of conflict can be measured by a nation's lost gains from trade. The greater two nations' gain from trade the more costly is bilateral (dyadic) conflict. This notion forms the basis of most theorists’ assertion regarding dyadic dispute and trade as espoused by liberal international theory.
This paper develops an analytical framework showing that higher gains from trade between two trading partners (dyads) lower the level of conflict between them. Cross sectional evidence using various data on political interactions confirms that trading nations cooperate more and fight less because they have everything to lose. And this confirms the notion that trade is indeed a beacon, of peace.
Keywords: International trade, beacon, peace.
JEL codes: F02
Global peace is an ideal form of freedom, peace, harmonious atmosphere, and happiness among and within all nations and/or peoples (Barbieri, K. and G. Schneider 1999) . To other scholars, world peace is a utopian idea of planetary non-violence by which nations willingly cooperate, either voluntarily or by virtue of a system of governance which prevents warfare. Although the term is sometimes used to refer to a cessation of all hostility among all individuals, world peace more commonly refers to a permanent end to global and regional wars with future conflicts resolved through nonviolent means (Gasiorowski, M. and S. Polachek 1982).
While world peace is theoretically possible, some like the pessimists school believe that Human nature inherently prevents it, as human nature is evil. This belief stems from the idea that humans are naturally violent and evil, or those rational agents will choose to commit violent acts in certain circumstances. Others however believe that war is not an innate part of human nature, and that this myth in fact prevents people from reaching out for world peace.
If world peace is defined as the absence of hostility, violence and conflict, not just between countries and regions, but between individuals, world peace would imply a worldwide end to violence and to institutions which rely on threats of violence to sustain their existence. It follows that there could be no law enforcement, because force is a form of violence. Without law enforcement, there could be no laws, except those which everyone voluntarily agrees to follow. Finally, there could be no governments of the type that rely on threats of violence to collect taxes, maintain their borders, or govern their citizens. And this assumption consequently leads us to a utopian belief, which fails to hold in real life.
Having conceptualized in general what global peace entails. The fundamental question to ask here, is that is global peace a reality, if so under which mechanisms can this be achieved? Some see a trend in national politics by which city-states and nation-states have unified in pursuance of trade, and suggest that the international arena will eventually follow suit. Many countries such as China, Italy, the United States, Germany and Britain have unified into single nation-states, with others like the European Union following suit, suggesting that further globalization will bring about a unified world order. The resulting factor will be higher trade volumes and reduced conflicts. The force behind this rapid globalization is no other than trade, which is used as a medium and beacon of piece, as trade is actively bringing all people of different boundaries together. Subsequently every people have no choice but to live in harmony if they have to pursue further trade. There are more costs to conflicts than gains you obtain through trade.
The paper is organized as follows; in this section we have given a detailed introduction of the topic. In the next section we will talk about trade and divergence in its perspectives in section 2.0; this is followed by a discussion on economics model of the “Peace-Through-Trade”, Liberal hypothesis in section 3.0, and in section 4.0 we briefly illustrate the game-theory: signaling models, followed by observations from the trade-conflict model regarding the democratic peace and lastly the conclusion is given in section 6.0
Following a detailed introduction of the topic above, we will try to put trade and conflicts into the right perspectives now.
It is been observed that Cuba has had a confrontational relations with USA and more cooperation relations with Russia for a long time now, and in the 1990s Cuba had seen a lot of dramatic trade cooperation from Canada which has strong relations with USA, because of this intertwinement of Cuba-Canada-USA relationship, USA and Cuba may eventually end up being allies in future. In this regard, studies have revealed that economic and political relations are intrinsically intertwined. In this section, we argue that the “trade and conflict” literature is motivated by this observation of this nature in reality. Any given country can be both cooperating with some countries and in a state of conflict with another set of nations at the same time. Furthermore, economic and political relations go hand-in-hand.
Aside from the countries mentioned above, there are countless other examples in this world (Neil R. Richardson, 2004). The question we want to address is why a particular country, like the United States has good relations with Canada yet poor relations with a country like Cuba; and why at the same time does a country like Cuba can have good relations with Canada, yet poor relations with the United States. Clearly looking at the uniqueness of only one country in isolation, rather than both the countries comprising the bilateral relationship (i.e., the dyad) would not provide a full answer. Nor would universal variables, i.e., variables common to the entire international political system provide an answer, since they would not be able to explain how cooperation and hostility coexist simultaneously between two members of the system. For this reason, at a minimum, it makes sense to concentrate on dyads rather than countries as the component of observation. In fact, this is precisely the approach of the conflict-trade literature, though now some have begun to extend the theory to incorporate many-sided situations. In essence what this trend among Cuba, USA and Canada is trying to show us in its general perspectives is that trade can be unifying factor among various countries. This is because if there was a conflict between Cuba and USA for instance, USA may fail to attack Cuba as Canada may act as a mediatory country between the two because of its trade relations it enjoys with Cuba andUSA.
In the context of dyadic relations, Solomon W. Polachek (2006) defines conflict as trade gone skewed. He argues that it is well known fact that nations (or for that matter other economic entities such as households) can raise their well-being through trade (if there is a difference in the relative prices each faces prior to trade). It results from gains due to specialization in production, which leads to higher levels of income and therefore greater consumption opportunities and from the prospect to exchange at the lower prices, even if the level of production remains unchanged from its pre-trade level.
Empirical evidence indicates that gains from trade can be substantial. For example, Acemoglu et al. (2003) demonstrate that access to the Atlantic is responsible for the rise of (Western) Europe between 1500 and 1850, and this is especially true for nations engaged in long distance oceanic trade. But what happens when a particular economic entity’s gains from trade are not as high as it thinks it should receive? Often in such a circumstance the entity uses force to achieve redistribution through various means of coercion. Liberalists have argued that using force to coerce is also a form of conflict. Since force can be viewed as a type of trade, (“I’ll be violent if you don’t give me what I want”), conflict is a form, as well as symptom, of “trade gone awry” (Acemoglu et al. 2003) As such, and he argues that conflict occurs when parties fight over economic rents. When conflict lasts over a long period, it is known as protracted conflict. From a normative perspective, the control and eradication of conflict is an area of interest in the field of defense economics and peace science (Acemoglu et al. 2003). Economists and Liberal Theorists in this area study ways to achieve peace through eradication of conflict, while also exploring the more positive aspect of assessing its impact on society. But to control and eradicate conflict, one must know how and why inadequate trade gains come about. Therefore, with this observation of studying ways to achieve peace through eradication of conflicts leads us to the issue of obligation for peace.
International Relations studies, particularly liberalists have observed that eradicating hostility and promoting cooperation is a significant step leading to peace. One method of thinning hostility and bringing about cooperation is by legalistic dictum often initiated by third parties. One of the most profound and diplomatic mediums of this is through trade. However, the problem is that attempts at peace imposed by others may be innately unstable, especially when the underlying differences originally separating the countries remain. For this reason, it seems reasonable that a viable peace is a natural peace based on mutual dependence and therefore trade enhances and facilitates this linkage. In his criticism of the Treaty of Versailles, Keynes (1920) argued that Germany be allowed to have economic relations with the rest of Europe or the prospects for peace would be dim. For example in The Economic Consequences of the Peace he writes “If we oppose in detail every means by which Germany or Russia can recover their material well-being, …we must be prepared to face the consequences of such feelings (Keynes 1920).” Solomon W. Polachek (2006) similarly argues that only through mutual dependence can equilibrium come about where peace remains solid and secure, so that neither party is motivated to change the status quo.
Therefore we can note that mutual dependence makes conflict more costly, and as such, it increases incentives for cooperation. Probably many types of mutual dependence affect international relations. In many instances, political motivations form the basis of mutual dependence. When Willy Brandt became Foreign Minister in the Federal Republic of Germany in 1966, he developed the policy of Neue Ostpolitik, eventually leading to a 1970 agreement accepting the borders of Berlin. Henry Kissinger pioneered the policy of détente that led to a considerable reduction in U.S.-Soviet tensions; including the SALT I strategic arms reduction talks, and the "opening" of China leading to an anti-Soviet Sino-American alliance (Solomon W. Polachek 2006).
However, underlying most of these instances of mutual dependence are economic considerations which are normally attained through trade among partners. Willy Brandt sought closer trading relations with Eastern Europe and the Soviet Union (Solomon W. Polachek 2006). According to Solomon W. Polachek (2006), this helped prop up the weak communist economies, but it also highlighted the contrasting wealth and poverty between the east and west and probably ultimately set the stage for reunification. Certainly from the Soviet perspective decelerating the arms race reduced the drain on social and economic resources, but equally America’s economic vulnerability to nuclear holocaust was unimaginable. Certainly from China, Kissinger and Nixon sought trade in one of the fastest growing world markets (Solomon W. Polachek 2006). Finally, more recently, mutual dependence based on economics served as justification for the European nations to come together to form the European Union.
In this article and particularly this section, we concentrate on economic interdependence and in particular what political scientists refer to as “vulnerability interdependence” in the international relations literature. This type of interdependence attempts to capture the cost of rupturing economic relations with another country. In fact, most quantitative studies of interdependence and conflict focus solely on economic aspects because economic aspects are more easily measured. As we will see later, most use bilateral trade (or some trade-related measure such as trade share or a trade-relative-to-GNP statistic) as the measure for interdependence, but even this, is a simplification of issues. As will be explained, theory predicts “gains from trade” (relative gains) to be the most relevant indicator of economic interdependence. However, because of the difficulty nature of measuring trade gains, almost all research uses some variation of trade level to measure mutual economic dependence. But before we jump to this conclusion, we scrutinize the trade (interdependence) - conflict model first to put us in a clearer perspective of the theory.
 This increase in their welfare from an initial autarkic state is referred to as the “gains from trade.”
 Reconciliation between Eastern and Western Europe
 See Mansfield and Pollins (2001) for further reference
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