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Insecure Resources, Bilateral Trade, and Endogenous Predation: A Game‐Theoretic Analysis of Conflict and Trade
Author(s) -
Chang YangMing,
Wu ShihJye
Publication year - 2020
Publication title -
southern economic journal
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.762
H-Index - 58
eISSN - 2325-8012
pISSN - 0038-4038
DOI - 10.1002/soej.12430
Subject(s) - openness to experience , economics , welfare , revenue , incentive , distortion (music) , gains from trade , international economics , consumption (sociology) , trade barrier , adversary , international trade , microeconomics , market economy , psychology , social psychology , amplifier , social science , statistics , mathematics , accounting , cmos , electronic engineering , sociology , engineering
This article analyzes how interstate conflict over resources affects the incentives to trade and how greater trade openness affects the endogenous decisions of arming by enemy countries. We identify conditions under which there is trade between two adversary countries and show that each adversary's arming affects domestic welfare in three different ways. The first is an export‐revenue effect, which increases welfare because arming causes export revenue to go up (i.e., there is an arming‐induced terms‐of‐trade improvement). The second is a resource‐predation effect, which increases welfare because arming increases the appropriation of a rival country's resource input to produce a consumption good. The third is an output‐distortion effect, which reduces welfare because arming lowers the domestic production of civilian goods. Based on these effects, we show circumstances in which greater trade openness reduces the intensity of arming. We also discuss the implications of resource security asymmetry for conflict and trade.