Beyond being Good Neighbors: Proximity to International Markets Matter More for India Pakistan Peace

The purpose of this paper is to examine whether greater level of international integration, increased development spending and economic growth improve relations between India and Pakistan. The analysis controls for political orientation, defence spending and population for both countries. We investigate the causal links between different measures of bilateral conflict and these variables in a time series framework running between 1950-2005 in most instances. Our results suggest that more international trade, improved budget allocation for development sector and higher growth rates have been the primary determinants of conflict mitigation between India and Pakistan. The export capabilities of both countries are key for the peace process to move forward. We also find that India Pakistan conflict is the cause of high military expenditures and low/stagnant development expenditures in Pakistan over the Last 50 years. Another important finding of the study is that a weak relationship exists between conflict mitigation and relative political orientation of both countries