Economic Dimension

2.
2 Economic Dimension of Conflict

Conflicts cannot be detached from their economic dimensions. In fact, the desire to
dominate economy and manipulate wealth has long been one of the most conspicuous
reasons behind conflicts among groups and states worldwide. Even though circumstances
and the natures of conflicts and conflicting parties have changed, economic interests and
the motive to control resources can still explain many of the wars and crises taking place
in the world. Many of the sucecessive regional and international conflicts in the Middle
East are partly attributed to its natural resources and strategic location, which give it
greater importance and trigger rivalry over it. However, just as the economy plays a role
in severing conflicts, determining their directions, and settling them, conflicts affect
economic situations and often impede political refornms. Despite the discrepancy in their
political situations, the countries of the Arab Spring offer a striking example of economic
encumbrance caused by the difficulties of political transition and its accompanying
conflicts over the nature, rate, and direction of the desired political change.
Conflict is difficult to comprehend from a traditional economic perspective. Central to the
economic analysis of conflict and its consequences, is the tradeoff between production
and appropriation. Economic dimension of conflict is a game, in which participants
expend resources on arming so as to increase their probability of winning if conflict were
to actually take place. A key ingredient of conflict has been, and still is,the use of
weapons: swords, pikes, cannons, bombs, guns, and so on. From an economic
perspective, weapons can be thought of as inputs into conflict. However, unlike the case
of ordinary economic production, in which inputs are combined cooperatively in order to
produce useful output, the inputs of conflict are contributed by each party in an
adversarial fashion against other parties. Instead of useful production, the output of
conflict can reasonably be thought to be wins and losses. A fundamental premise of the
economics literature on conflict is that economic agents often face a tradeoff between
producing goods and grabbing what others have produced.'
The type of economic policies that governments choose plays a significant role in
determining the likelihood of conflict. Policies that induce conflict may result from
deliberate decisions to weaken state institutions so that leaders can more easily enrich
Mueller, Hannes and Julia Tobias, "The cost of violence: Estimating the economic impact of conflict".
International Growth Centre, Growth Brief, December 2016.
Al-Jazeera, "The Economic Aspect of Conflict", The 9h AL Jazeera Forum, 2015.
https://forum.aljazeera.net/archive/forum-2015/programme/seminars/economic-aspect-conflict.html
Garfinkel, Michelle R. and Stergios Skaperdas, "Economics of Conflict: An Overview", in Handbook of
Defense Economics, Vol. 2 (chapter 3) April 2006.
64
themselves. Sometimes however conflict may result from attempts to increase economic
efficiency. Economic factors make some societies susceptible to conflict, and one of the
main factors is poverty, leading not only to civil but also international conflict. Although
wealth reduces the chances of conflict, the rise in global economic prosperity throughout
the 20th Century has corresponded with an increase rather than a fall in the number of
civil wars. his is likely due to the rise in other conflict-inducing factors, such as
population levels, and the fact that global growth has been unbalanced.
Economic power-sharing is not unique to conflict settings. Many countries have forms of
economic power-sharing, in particular where they have devolved power to sub-state units.
So called fiscal federalism' involves sharing of economic management and decision
making between central state institutions and those of sub-state units. Countries with
significant natural resources also often have special mechanisms for allocating these
resources, which can prioritize the territories in which the resources are found, or target
particular areas of socioeconomic need.'
2.3 Trade as Conflict Maker or Conflict Resolution
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
for interstate relations, it also varies in degree and character across pairs of states.'
In International Relations, there have been four major propositions about the trade
conflict relationship:- (1) the liberal argument consider trade as promoting peace: (2) For
neo-Marxists, when they have symmetrical ties it promotes peace, while their
asymmetrical trade leads to conflict; (3) the suggestion that trade increases conflict; and
(4) the belief that trade is irrelevant to conflict.
1) Trade Promotes Peace

Liberals, functionalists, and neo-functionalists argue that the expansion of interstate
linkages in one area stimulates further cooperation in other areas. Interstate linkages are
thought to improve communication, reduce misunderstanding, and foster cultural and
institutional mechanisms capable of mediating conflicts of interest that do arise.
Ultimately, the recognition of mutual benefits through cooperation serves to foster peace,
as national interests converge. A related economic argument attributes the inverse
relationship between trade and conflict to states' recognition that trade is an increasingly
more efficient means for acquiring pro- ducts and markets than military conquest. It is
major assumption that states are deterred from initiating conflict against a trading partner
for fear of losing the welfare gains associated with trade. Solomon Polachek's Utility
model of trade and conflict provides the basis for understanding both the arguments of
advocates and critics of the proposition that trade promotes peace.
2) Symmetrical Trade May Promote Peace
A clear link is established between expanded trade and peace within the liberal tradition.
The link is tenuous for those who maintain that trade might entail net costs or for those
who view states' concerns about absolute gains as subordinate to concerns about relative
gains. However, the critics of liberalism argue that If costs outweigh benefits, as argued
by critics of liberalism, the link of trade to peace appears less convincing. Moreover, this
literature has argued that trading relations may even be a source of tension, particularly
when relations are asymmetrical.
The negative consequences of dependence are believed to be greater in asymmetrical
relations, as provided by the dependency school of thought and neo-Marxists. They argue
that trade does not always entail net benefits, and may instead entail net costs. Rather
Gasiorowski, Mark, 1986a. "Economic Interdepen-dence and International Conflict: Some Cross
National Evidence', International Studies Quarterly, vol. 30, no. 1I, March, pp. 23-28.
2Rosecrance, Richard, 1986. The Rise of the Trading State: Commerce and Conquest in the Modern
World, New York: Basic Books.
3 Polachek, Solomon W. , 1992. 'Conflict and Trade: An Economics Approach to Political International
Inter- actions', pp. 89-120 in Walter Isard & Chale H. Anderton. eds, Economics of Arms Reduction
and the Peace Process. Amsterdam: North-Holland.
66
than increasing the prosperity of trading partners, trade often results in the
impoverishment of less powerful nations. A broad list of counter-claims has been
advanced by dependency theorists in response to liberal claims of trade's universal
benefits. These include the argument that: the gains from trade are enjoyed exclusively by
developed states; trading relations between developed and developing nations retard the
development process of the latter; trade destroys traditional political, economic, and
social institutions; trade exacerbates inequalities in the wealth of nations; and trade
relegates powerless states to aposition of dependence."
Moreover, dependent states may face negative political consequences when they become
subject to the manipulation or coercion of the more powerful (i.e., less dependent) state in
the trading relationship. The power that arises from asymmetrical dependence may be
used to gain concessions in either the political or economic domain". Particularly, when
structural linkages exist, dependent states are less able to alter their trade patterns and
may become subject to manipulation. Thus, such states will be unable to enjoy the
benefits of trade without being vulnerable to coercion. When extensive economic
dependence threatens national autonomy and poses problems for domestic foreign policy
makers, tensions may arise among trade partners. The negative consequences of
dependence are assumed to be more pronounced in asymmetrical relationships; however,
trade.
3) Trade Increases Conflict

A third group of theorists, arising primarily from Marxist-Leninist, resource scarcity,
and neo- realist thought envisions conflict accompanying expanded global trade. Critics
also reject the notion advanced by liberals that trade will always be a desirable substitute
Polachek, Solomon W. & Judy McDonald, 1992. 'Strategic Trade and the Incentive for Cooperation',
pp. 273-284 in Manas Chatterji & Linda Forcey, eds, Disarmament, Economic Conversion and Peace
Management. New York: Praeger.
Keohane, Robert & Joseph Nye, 1977. Power and Interdependence: World Politics in Transition. Bos
ton. MA: Little Brown.
Hirschman, Albert O., [1945] 1980. National Power and the Structure of Foreign Trade. Reprint. Berke
ley & Los Angeles, CA: University of California Press.
Gowa, Joanne, 1994. Allies, Adversaries, and Inter- national Trade. Princeton, NJ: Princeton University
Press.
67
to military options for acquiring resources and market. The history of colonialism and
imperialism illustrates how military force may be used in conjunction with trading
strategies to establish and maintain inequitable economic relationships. Thus, the
expansion of trade may not promote peace, but may involve increased interstate conflict,
as powerful states vie with one another for control over finite resources and markets, and
use force to subjugate developing states to a position of dependence. Although
interesting, these studies are focused at the system level of analysis and are less relevant
to the study.
The trade is another level of conflict in the economic dimension. There is strong evidence
that countries that trade with each other are less likely to fight each other, though it has
been debated as sometimes mutual dependence established between two trading
partners(dyads) is sufficient to raise the costs of conflict. thereby diminishing levels of
dyadic dispute. Conflict is also assumed to affect the terms of trade. Specifically, greater
levels of conflict make trade more difficult. Reasons include retaliatory tariffs, quotas,
embargoes, and other trade prohibitions. Conflict thus raises the costs of trade, thereby
making at least one of the countries worse off (in a welfare sense). The implicit price of
being hostile is the diminution of welfare associated with potential trade losses. Trade is
postulated as an instrument to reduce conflict, as trade tends to increase cooperation.
Trading countries with significant trade relations would thus engage in less conflict,
because they are most threatened by welfare losses associated with lost trade.?
4) Trade is Irrelevant to Conflict
The realist theorists have traditionally relegated economic relations to low politics,
arguing that the influence of trade is subordinate to other considerations in determining
the incidence of international conflict. Instead, traditional security concerns and military
factors dominate leaders' calculations of the utility of conflict. In addition, realists
recognize that economic instruments may be an important tool in the pursuit of the
national interest. In such instances, trade does not represent a path toward interstate
peace, but a means for securing power. Trade relations represent transitory arrangements
for pursuing the national interest; when demands change, trade ties can easily be broken.
In no way does trade preclude the use of alternative strategies to further the national
interest, including the use of force. One way to reconcile the differences in the

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2.

2 Economic Dimension of Conflict

2.3 Trade as Conflict Maker or Conflict Resolution

1) Trade Promotes Peace

3) Trade Increases Conflict

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