ECONOMIC INTERDEPENDENCE AND INTERNATIONAL INTERACTIONS : THE IMPACT OF MARKET POWER ON DYADIC CONFLICT AND COOPERATION

This article presents a theoretical approach to analysing how a country with market power could affect international relations. The liberal view and trade-conflict model claim that if countries seek to protect their trade gains, trade will reduce conflict between pairs of countries, "designated "actors" and "targets"." The main purpose of this paper is to examine the effect of market power on the gains from trade. Once the distribution of trade gains is changed between countries, the conflict and cooperation relationships between countries will also alter. We apply the trade-conflict model to derive two propositions as follows: (1) the more monopoly power over exports a monopolistic target has, the greater the amount of actor-to-target conflict; (2) the more monopsony power over imports a monopolistic target has, the greater the amount of actor-to-target conflict. To summarise, these hypotheses will predict that a country with market power reaps the gains from trade and will exhibit less conflict and more cooperation, whilst the country that is exploited will exhibit more conflict and less cooperation. Copyright 2005 Economic Society of South Africa.