Economic Agreements and Interstate Conflict: A Policy Substitution Model of Coercion

Economic integration agreements - also called preferential trade agreements or regional trade agreements - have dramatically expanded in scope since World War II. While the proximate goal of economic integration is to increase commercial exchange between member states, there are strong reasons to believe agreements affect security relations as well. In particular, by increasing interdependence between member states through trade and investment, economic agreements increase the opportunity cost of coercion. However, they simultaneously marginalize commercial ties between agreement members and the outside world and exacerbate relative gains concerns through trade diversion. Hence I argue that while conflict between agreement members likely abates, it may become more likely between members and non-members. Furthermore, in considering the impact of economic agreements on security relations, I take a broad view of the interstate conflict process that includes multiple coercive strategies. Specifically, I consider how agreements influence the use of economic sanctions and military force as substitutable coercive strategies in disputes. Using the logic of policy substitution, I develop a formal bargaining model capturing a state\u27s decision between sanctions and military force. I draw several implications from the formal model. First, asymmetric trade relations between agreement members results in the use of military force by dependent states and economic sanctions by autonomous ones. Second, symmetric trade relations between agreement members result in economic sanctions. Finally, members and non-members of agreements are more likely to use military force in disputes. I evaluate these arguments using statistical test of dyad years from 1970 to 2001. Ultimately, I find the influence of agreements is highly contextual and based on economic relationships between states. Conditional support is found for the idea that economic agreements reduce conflict between members and increase it with non-members provided certain economic conditions exist. However, other economic relationships can actually increase conflict between states in the same agreement. Furthermore, I do not find support for the argument that economic agreement members substitute economic sanctions for military force as strategies in disputes. Conditional support does exist for a substitution effect between members and non-members, however