International Trade and Interdependence

Term Paper (Advanced seminar), 2013

18 Pages, Grade: 7

Free online reading


The question of whether interdependence promotes peace or conflicts is a contested concept in the field of International Political Economy. The answer to such puzzle depends on which variables that are taken into consideration. The liberals claims that interdependence promotes peace while the school of Realism and Neo-Realism claims that it promotes conflicts and antagonistic between nations. The Liberals believes that economic activities can able to diminish the political differences between nations due to the growth and benefits derived from such activities, while for the Realists, the security of the state is the primary concern. While the absolute gains phenomenon is fine for the Realists but the major problems are the relative gains that are involved in such economic transactions.

I am primarily trying to explore the connections between interdependence and its relations with peace and conflict in this paper. I have chosen to work on this topic, as there has been a general understanding that with the increase in the movement of goods and capital through the advancement of information, communication and technology, there has been reduction in the conflict among the nations and mutual interdependence fosters harmony and peace. More important is the fast movement of “idea” with this process. This is half-truth. This is just one side of a coin. The other side is that international trade and interdependence do produces conflict, and even leading to trade war.

Overall, this paper aims to focus on exploring the curiosity theoritically to understand:

a) How does international trade and interdependence affect conflict? (Does trade make conflict more or less likely?)
b) What is the relationship between international trade and civil wars?

- Note: I, Kh. Farook Ali, especially thank Dr. Jayati Srivastava for her helpful comments on this term paper without which the term paper would not reach to what it is today. The extension of submission date for this term paper for 5 days more by Dr. Jayati Srivastava was an immense help in completing this paper.
- Idea that “Politics divides us, economy unites us all” is taken from movie ‘Sherlock Homes’.

This essay has three major sections. The first section reviews the theoretical argument concerning the relationship between interdependence and peace hypothesis that Liberals claim. The literature reviews of few of the writing on the topics are discussed along with taking the European Union Integration as the case study. The second section reviews the relationship between interdependence and conflicts hypothesis with explanation drawn from Realism and Neo-Realism. The hypothesis is evaluated through the Euro-Zone crisis. The third section focuses on the relationship between international trade and civil wars. This portion of the essay received maximum attention with two case studies: one is Sierra Leone and Liberia, and another is Democratic Republic of Congo. Considering the limited scope of the paper, I will avoid deveining into the understanding of how international trade promotes interdependence. I will be taking for granted that international trade promotes interdependence, and dwell from this the understanding of how interdependence is related to peace or conflicts. The definition of “conflicts” used in the essay are in broader term including tension between nations, diplomatic measures, and sometimes to its extreme i.e. violence.

Interdependence and peace hypothesis

“Politics divides us, economy unites us all”

-Sherlock Homes movie

The very heart to this hypothesis is the claim that interdependence increased economic exchanges, inhibit interstate conflict, and promote peace and harmony among nations. Liberals, Neo-liberals Institutionalism and Neo-functionalism school have been the major advocacy for this hypothesis. The classical liberals argued that market left alone will interconnect nations of the world through trade and enables the leaders to interact with one another and mutual understanding and peace can be foster.

Two thinkers i.e. Thomas Paine and Immanuel Kant highlight the core principle of interdependence leading to peace hypothesis. Kant argued that as interdependence facilitate profits and growth, so there will be incentives to maintain harmonious relationship between

nations. As such, international conflict will decrease. He argued that the benefit derived from economic activities would have a spillover effect on the political activities. Domke argued that those involved in commerce will influence the decision makers of the state to seek peace and improves relationship with other nations. Moreover, liberals argued that the cost of fighting war is more costly than benefits.

Within the liberal framework four variant arguments provides the explanation of liberalism. Robert Keohane identified three variants of liberalism applicable to the study of international relations (1990, P.175-182). Arguing that all three are distinct but consistent with one another, he argued liberal interpretation of world politics rely upon each set of arguments.

1) Republican liberalism

This version of liberalism argued that republics are more peaceful. These nations are based on freedom of individuals, the rule of law and the equality of citizens. Moreover, executive’s actions are limited by legislature. They are less likely to go war as the consent of the citizens is required to decide for the actions. Individuals are free to create a “web of mutual advantages and communities that bolsters sentiments of public respect” and establish international ties (Doyle 1983:213).

2) Commercial liberalism

Commercial liberalism is consistent with the classical economists’ argument, that private property rights should be recognized and decisions relating to the market must be free from state control and left to the forces of supply and demand logic of market (Doyle, 1983:208). This version of economic liberalism are found in the writing of Adam Smith, Montesquieu etc. in modern capitalist world, they linked increasing peace among nations with the mobility of capital. Montesquieu claimed, “The natural effect of commerce is to lead to peace” (Cited in Hirschman, 1977:80). Another argument of commercial liberalism is that free trade and interdependence brings nations together and made recognized of the fact that their wealth and prosperity depended on one others. Commercial liberalism claim for open economy without or with

minimum state interference and it is the requisite for increasing trade that will promote interdependence and peace (Rosecrance, 1986:213).

3) Regulatory liberalism

This version emphasized the rules governing patterns of exchange among countries for peace. For perpetual peace, according to Kant, regulation is necessary and proposes a “federalism” of Free State (as cited in Hirschman: 441-445). Keohane argued that there is variation in results in promoting cooperation by international institutions due to human ingenuity and commitment. Human being has to construct cooperation based on recognition that independent governments hold both power resources and more legitimacy than any international organization. International organizations need to be created and in turn gradually, these institutions alter the interest motive for widening the cooperation. Institutions provide information, facilitate communication and furnish services that cannot be provided by the government.

Sophisticated liberalism

According to Keohane, trade does not necessarily leads to peace but rather provides incentives for peaceful than aggressive expansion. It depends on which rules and institutions and much more how institutions impacts on the commerce, how far institutions promote and guarantee openness. Furthermore, it also depends on the interest and power of the political structure involved. International institutions also help in minimizing the mistrust among the nations. The rules of international exchange and institutions must be based on the principle of state sovereignty, but they provide an incentive structure that promotes international cooperation as well as prosperity” (Keohane 1990:166).

Literature Review:

Polachek (1980) argued that all nations are not always in conflict. Cooperation between the nations exists more than the conflicts. Increasing trade and investment increases mutual interdependence resulting in net increase in the incentives to move forward for mutual

18 of 18 pages


International Trade and Interdependence
Jawaharlal Nehru University  (CIPOD)
M. Phil.
Catalog Number
ISBN (Book)
File size
645 KB
Note 7 = A- Grade 7 = A-
international, trade, interdependence
Quote paper
Khutheibam Ali (Author), 2013, International Trade and Interdependence, Munich, GRIN Verlag,


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