Economic liberalization and international order.

• Author: Tures, John A.

In a recent study, I examined the connection between economic freedom and internal conflict (Tures 2003). This article expands upon the earlier study by examining file link between economic liberty and external conflict. The question I now address is, does economic liberalization promote international order by reducing conflict among nations?

Research Design

In analyzing the relationship between economic freedom and external conflict, I rely on the KOSIMO data set from the Heidelberg Institute for International Conflict Research (HIIK 1998, 1999) and on the Fraser Institute's economic freedom of the world (EFW) index (Gwartney and Lawson 2000). The HIIK provides data on cases of external conflict, ranging from latent conflicts to less violent crises, to mostly violent crises, to international war. For the purposes of this study, I divide these conflicts into two groups: (1) less severe conflicts, which include latent conflicts and less violent crises, and (2) more severe conflicts, which include mostly violent crises and international wars. I look at all cases of external conflict that involve multiple parties, and each country involved is treated as a unique case. For example, Bolivia, Chile, and Peru have feuded over a narrow strip of land between Tacna and Africa in the Antofagasta region. That conflict is treated as three separate cases: one for Bolivia, one for Chile, and one for Peru.

In measuring economic freedom, I rely on the EFW index that ranks countries on a scale of 0 to 10, with higher scores representing greater economic freedom. Countries with EFW scores ranging from 7 through 10 are categorized as Free, those with scores from 5 to 6.999 as Partly Free, and those below 5 as Not Free. The EFW index scores are only reported every five years for each country, beginning in 1970. This study examines seven cross-sections: 1970, 1975, 1980, 1985, 1990, 1995, and 1997. The EFW index scores are paired with the KOSIMO data. The unit of analysis is the country and year for each cross-section (a "country case"). In other words, I check to see if the EFW report provides scores for Saudi Arabia in 1970, 1975, 1980, and so on. If it does, I then examine KOSIMO data to see if Saudi Arabia experienced an external conflict (or war) in 1970, 1975, 1980, and so forth. This methodology generated 712 country cases or units of analysis.

Preliminary Findings

Table 1 shows that 25.4 percent of all cases of external conflict involved economically Free countries, 38.7 percent involved Partly Free countries, and 35.8 percent involved nations that were Not Free. Free countries were also less likely to experience an external conflict (Table 1). The likelihood that a Free country would experience an external conflict was only 41.9 percent vs. 50.6 percent for a Not Free country.

Evidence also shows that Free countries experienced a lower percentage of less severe external conflict cases (27.2 percent) than countries with less economic freedom (Table 2). Finally, Table 3 shows that the chance that an economically Free country will experience a more severe external conflict is much lower (5 percent) than for a Not Free country (12.1 percent).

Detecting Differences between Observations and Expectations

In the preceding section, we learn two lessons. First, economically Free states do fight other countries. Second, these liberal states engage in fewer external conflicts than their Partly Free and Not Free counterparts. Does this evidence indicate that there is a relationship between economic freedom and international...