The impact of economic interdependence on the probability of conflict between states

The main purpose of this paper is to explore to what extent the economic interdependence can affect the likelihood of conflict between States. Specially, over the past few decades, there has been a huge interest in the relationship between economic interdependence and political conflict.

Liberals argue that economic interdependence lowers the possibility of war by increasing the weight of trading over the alternative of aggression; interdependent states would rather trade than invade; realists dismiss the liberal argument, arguing that high interdependence increases rather than decreases the probability of war. In anarchy, states must constantly worry about their security.

To answer a key question mentioned above: does the economic interdependence increase or reduce the likelihood of conflict among states?

The views of the researchers differed according to the approach and the theoretical schools to which they belong.
In general, there are three main perspectives for analyzing the relationship between interdependence and international conflict:

        1. Liberal prospective: Economic interdependence reduces international conflict and enhances opportunities for peace.

        2. Realist prospective: Economic interdependence increases international conflict.

        3. The impact of economic interdependence depends on the nature and content of relations and the balance of power in the international system.

The paper will adopt the third perspective to emphasize that not all the economic relations are equal, some boost peace others not.

 2. Conceptual framework: economic interdependence and international conflict

2.1 Economic interdependence

There are many ways in which economic interdependence may be defined and quantified. Although many scholars have written about interdependence, the definition continues to evolve and has multiple parts. In 1972, Richard Cooper asserted that “economic interdependence normally refers to the dollar value of economic transactions among regions or countries, either in absolute terms, or relative to their total transactions”.

He distinguished this “normal usage” from his more restricted concept of “the sensitivity of economic transactions between two or more nations to economic developments within those nations”.

In the field of international relations, “economic interdependence” has two meanings: First, “a group of countries is considered interdependent if economic conditions in one country are contingent on those found in the other”, for example, the change in the exchange rate of a country affects the economic conditions of other countries that enter into a relationship of economic interdependence.

Second, Probability of conflict between states 39 “countries are considered interdependent if it would be costly for them to rupture or forego their relationship “as would be the case if relations between the Organization of Petroleum Exporting Countries and the advanced industrial countries (which rely heavily on petroleum imports) were severed.

2.1.1 Indicators of economic interdependence: The general conception of interdependence can be divided into the following two categories:

        1. Sensitivity interdependence: It deals with cases in which economic conditions in countries are largely sensitive to changes in other countries. For example, if a destabilizing monetary policy shift in one country adversely impacts another country, the two would be said to be in a sensitivity interdependent.

        2. Vulnerability interdependence: The more common conception amongst international relations theorists. In this view, countries are irreparably harmed by dissolving their relationships with one another. Thus, vulnerability interdependence highlights the gains of cooperation and the potential losses of destabilizing relationships .The study will adopt the definition of ‘economic interdependence’ as “countries are considered interdependent if it would be costly for them to rupture or forego their relationship”.

2.1.2 Forms of economic interdependence

2.1.2.1 Trade interdependence.

It is one of the main forms of economic interdependence which plays a major role in influencing the nature and content of inter-state relations. The level of trade interdependence depends on the volume of trade between the states; the decision to start the war depends on the level of economic interdependence.

Throughout history, people have debated the virtues and vices of foreign trade, for many, trade represents a path toward peace and prosperity among nations, for others, trade is viewed as a contributing factor in the impoverishment of some nations and tensions between the nations, still others view trade to be largely irrelevant to leaders decisions to engage, in, or, refrain from, intense forms of interstate conflict.

In my opinion, “the natural effect of commerce is to lead to peace”. Two nations that trade together become mutually dependent “If one has an interest in buying, the other has an interest in selling; and all unions are based on mutual needs”.

It is obvious that not all trading relations are equal, some trading relations may contain the necessary conditions to foster peace, while others instill hostilities or exacerbate pre – existing tensions, to understand how such variations may obtain, it is necessary to consider the nature and the context of economic linkages between states.

2.1.2.2 Monetary interdependence.

Monetary interactions may also be a source of interdependence. States may choose to subordinate monetary sovereignty to a foreign power through a fixed exchange rate regime, pool sovereignty in a monetary union, or assert their own sovereignty under a floating exchange-rate regime.

Monetary interaction may be considered as part of the general notion of economic interdependence, although they reduce state autonomy in monetary policymaking, higher levels of monetary dependence raise the incentives to cooperate.

Current theories, however, lack a way to fuse the benefits of trade and the costs of severed trade into one theoretical framework. More significantly, these theories lack an understanding of how rational decision-makers incorporate the future trading environment into their choice between peace and war.

High interdependence can be peace inducing, as liberals maintain, as long as states expect future trade levels to rise in the future; positive expectations for future trade will lead dependent states to assign a high expected value to a constant peaceful trade and making war the less appealing option.

If, however, a highly dependent state expects future trade decrease because of the politic decisions of the other party, then realists are likely to be correct; the state will attach a low or even negative expected value to continued peace without trade, making war an attractive alternative if its expected value is greater than peace. In making the final decision between peace and war, however, a rational state will have to compare the expected value of trade to the expected value of waging war against the other party (Table I).

The level of economic interdependence between China and the USA

Oneal and Russett looking at the period from the mid-1960s to 2002, they found that the USA and China went from having no trade to a very significant level of economic interdependence, Oneal and Russett are aware that the US–Chinese case represents a uniquely important test of interdependence theory.