Complex Global Value Chains and Economic Interdependence: A New Look at the Opportunity Costs Argument

The classical economic interdependence argument states that trade and investment between countries make conflict less likely, because they increase the opportunity costs of war. War means that trade and investment will dry up, to the detriment of society as a whole. The increased opportunity costs of war (vis-`a-vis peace) means war will be less likely to occur between interdependent states. Certain strands of realism have challenged this assertion. They argue that expectations that trade will decline in future can be a strong incentive for initiating conflict. Giving increasing political and economic tensions between the world’s superpowers – the USA and the PRC – the question of whether interdependence leads to peace or conflict is more relevant than ever. I add to this literature by unpacking international trade flows in a world of complex global value chains (GVCs). I argue that both the classical and revisionist accounts fail to consider that it does not just matter how much you trade: exactly what goods you trade is important as well. Specifically, I introduce a new variable to help explain under what conditions economic interdependence can induce peace or conflict: internationally sourced inputs of traded goods