Download Buying Peace or Buying Arms ?: Military Spending in the

Assessing “God’s Diplomacy”:
Military Spending and the Commercial Peace
Lucy Goodhart
Columbia University
and
Anastasia Xenias
Hunter College, City University of New York
US Department of Commerce
Trade to end all wars
• “Commerce [is] rapidly rendering war obsolete, by strengthening
and multiplying the personal interests which are in natural
opposition to it”
– John Stuart Mill Principles of Political Economy 1848
• “Peace is the natural effect of trade. Two nations who traffic with
each other become reciprocally dependent; for if one has an
interest in buying, the other has an interest in selling: and thus their
union is founded on their mutual necessities..”
– Charles de Montesquieu, The Spirit of the Laws, Book XX
• The interdependence argument was developed by 19th century British
liberals such as Cobden and Bright. As Cobden put it, "Free Trade is God's
diplomacy and there is no other certain way of uniting people in bonds of
peace."
• Trade may not always be fully effective in preventing war (contra Norman
Angell, 1910, The Great Illusion) but does it help reduce hostility?
Commercial Peace
• The mechanisms through which trade could reduce conflict include:
– Economic interests
• trading states avoid war because they want to avoid costs if trade
is disrupted. This mechanism is more effective when trade is “free
trade” because of the societal groups it empowers (James & Lake,
1989, Milner, 1988, McDonald, 2004, Gartzke, 2005).
– Information
• the ability that trading states have to signal resolve mitigates
conflict (Sandoval-Bustos, 2006).
– international institutions
• Membership in trade groups reinforces both mechanisms above
(Bearce, 2003).
• Others have disputed the validity of the commercial peace as a "liberal
illusion" (Barbieri & Levy, 1999; Barbieri, 2002).
Our Argument
• If trade reduces the motivation for war and the likelihood of
conflict then trade will also reduce military spending.
• Military spending allows for a broader analysis.
– Military spending may be a less “noisy” signal of preferences for
conflict and perceptions of war likelihood than actual conflict (Gartzke,
1999).
– Conflict may be a random event affecting few states at any one time,
but military spending is constant and affects every state at all time.
– There is much more variation in military spending over time and
across countries than conflict.
• Thus, we use data on military spending to test the predictions
of the commercial peace hypothesis.
• These tests can advance the existing literature on the
commercial peace, all of which employs data on conflict.
• Finally, we clarify how the operation of the commercial peace
is related to context and how this affects our hypotheses.
Conditional Operation of the Commercial Peace
•
•
•
The effect of commercial peace will likely be stronger in the post-Cold War era
for two reasons
– Global threat declines: Elimination of the threat of superpower conflict
(1991); military spending and conflicts are no longer determined by
hierarchical relationships with the great powers.
– Global trade rises: globalization takes-off with creation of WTO (1993),
particularly for developing countries (ex. Asian Tigers, emerging markets).
The effect of the commercial peace may be weaker for countries that are
reliant on trade in natural resources, due to the “resource curse” (Garfinkel et
al, 2008).
The effect of the commercial peace should be distinctive for democracies and
autocracies. Two possibilities guide our reasoning:
•
•
•
The liberal peace at its core, is a statement on the peacefulness of citizens. When citizens
guide security policy there should be less war and more trade, less need to arm for war, and
stronger prospects for a commercial peace.
On the other hand, the effect of the commercial peace could be stronger for states with less
ability to make credible commitments and a weaker role for citizens eg: authoritarian states.
Thus, we look at variation in the relationship between trade and military
spending for different eras, and across regime, allowing for different types of
trade.
35
30
25
15
300
20
400
500
600
Trade as % World GDP
700
40
800
Globalization and military spending
1960
1970
1980
year
Spending
1990
Trade
2000
•
•
•
•
•
Data
Our Model
Real military spending
– COW deflated by GDP deflators from
WDI.
A measure of openness
– ratio of exports plus imports/GDP (PWT)
Controls for capability and balance
– Real GDP (WDI)
– total population (COW)
– average regional military spending
(COW)
– US military aid (WMEAT).
Security concerns
– Involvement in any conflict with 25
battle deaths or more (UNDCP/PRIO).
Natural resource curse
– Commodity exports as a percentage of
all exports (WDI).
Error Correction Mechanism
•
•
•
•
We look at annual data for a panel of
approximately 100 countries for the period
1960-2001 with a comparison of pre- and
post-1989 sub-samples.
We estimate the relationship between
military spending, trade openness and other
controls using an Error Correction Model.
This model is appropriate when the
dependent variable in levels (military
spending) is non-stationary and allows us to
look at short-run and long-run effects on
spending.
We estimate the model below and present
results on long-run multipliers.
P
P
p 1
p 1
Yt   0  [Yt 1  X t 1 ]   1 p yt  p    2 p X t  p   t
Table One: The Commercial Peace –
Comparison of Openness and Democracy
Real military spending
Error Correcting ρ
ω on Real GDP
ω on Population
ω on Military Aid
ω on Democracy
ω on Openness
ω on Avg. Reg’l Spending
ω on Any Conflict
1960-1989
-0.26***
(0.31)
0.64***
(0.16)
0.76***
(0.27)
0.007
(0.005)
-0.17
(0.11)
0.20
(0.13)
0.25**
(0.11)
0.38***
(0.10)
1990-2001
-0.49***
(0.09)
0.60**
(0.27)
0.63
(0.39)
-0.02*
(0.01)
0.005
(0.09)
-0.29**
(0.14)
0.10
(0.11)
0.17**
(0.08)
Table Two: Post Cold War/Globalization era
Real Mil spending
Democracies
Non-democracies
Error Correcting ρ
-0.51***
(0.10)
-0.52***
(0.11)
ω on Real GDP
0.65*
(0.37)
0.26
(0.46)
ω on Population
0.89*
(0.48)
0.85**
(0.41)
ω on Military Aid
-0.01
(0.01)
-0.01
(0.01)
ω on Openness
-0.19
(0.22)
-0.42
(0.27)
ω on Avg. Reg’l Spending
-0.02
(0.10)
0.28*
(0.16)
ω on Any Conflict
0.19**
(0.09)
0.09
(0.12)
Table Three: Peace and Natural Resources
Real military spending
Error Correcting ρ
ω on Democracy
ω on Openness
ω on Openness*Nat Res
ω on Nat Res Dependence
1960-89
-0.23***
(0.03)
-0.21
(0.15)
0.16
(1.16)
0.001
(0.004)
0.09
(0.13)
1990-2001
-0.48***
(0.10)
-0.06
(0.12)
-0.27
(0.18)
-0.008
(0.01)
0.32
(0.47)
Results
• Openness to trade has no significant effect on military
spending for the 1960-89 era and a significant and positive
effect from 1990 on.
• The coefficient on trade openness is larger for nondemocracies than democracies in the post-Cold War era but
cannot be estimated precisely for either set of countries.
• Natural resource dependence is not significant for either
democracies or non-democracies (in either period). The
natural resource curse is associated with domestic conflict
and higher military spending but does not impede the
workings of the commercial peace.
• From the perspective of military spending, trade openness is a
stronger factor in promoting global peace than democracy in
the contemporary era.
Normative Significance
• First, trade expansion requires no change in political regime,
avoiding the difficult questions of Western cultural
imperialism.
• Second, trade expansion is far more immediate than change
of political regime promising faster results.
• Third, trade expansion addresses the economic imperatives of
developing countries, often with non-democratic government
or weak democracies.
• Fourth, a global institution with near universal membership,
the World Trade Organization, already exists to foster trade
expansion.