Economic Exit, Interdependence, and Conflict

This article examines the question of whether economic interdependence constrains or motivates interstate conflict. The theoretical model predicts when and how interdependence influences conflict, using exit costs to separate economic interdependence from less binding economic interaction. Analysis of the model suggests that when exit costs exceed an endurance threshold for at least one state, the threat of exit becomes a viable but limited bargaining tool. Exceeding this threshold increases low‐level conflict as states use economic and diplomatic tools to resolve demands, but it decreases high‐level conflict because states take advantage of more efficient means of dispute resolution. If the stakes are too high, however, exit costs fail to check conflict, and the economic relationship becomes an ineffective bargaining arena. Empirical analysis provides support for the hypotheses derived from the model.