Insiders versus Outsiders

• DOI: 10.1177/0022002713520483
• Published date: 01 June 2015
• Date: 01 June 2015
• Subject Matter: Articles

Article

Insiders versus

Outsiders: Preferential

Trade Agreements,

Trade Distortions, and

Militarized Conflict

Timothy M. Peterson

1

Abstract

A growing literature examines the link between preferential trade agreements

(PTAs) and peace among member states. However, despite the potentially com-

petitive nature of these agreements, there has been little research examining

whether and how PTAs could induce hostilities between members and non-

members. In this article, I argue that dyadic conflict is more likely when one dyad

member’s exclusive PTA with a third party results in lower exports for the dyad

member that is excluded from the agreement. Importantly, I contend that trade

creating as well as trade diverting PTAs can have this effect. I use a triadic extension

of the gravity model of trade to estimate how an exclusive PTA influences the

exports of nonmembers relative to PTA members. Using these estimates in statis-

tical tests of dyadic militarized interstate dispute onset spanning 1961 to 2000, I find

that PTA-induced trade distortions are associated with a higher likelihood of conflict

between members and nonmembers.

Keywords

trade, conflict, regionalism

1

Department of Political Science, University of South Carolina, Columbia, SC, USA

Corresponding Author:

Timothy M. Peterson, Department of Political Science, University of South Carolina, 312 Gambrell Hall,

Columbia, SC 29210, USA.

Email: timothy.peterson@sc.edu

Journal of Conflict Resolution

2015, Vol. 59(4) 698-727

ªThe Author(s) 2014

Reprints and permission:

sagepub.com/journalsPermissions.nav

DOI: 10.1177/0022002713520483

jcr.sagepub.com

States entering into preferential trade agreements (PTAs) stand to gain considerably

from the reduction or elimination of trade barriers with members. However, since

pioneering work by Viner (1950), scholars have noted that gains from preferential

liberalization could accrue at the expense of third parties from whom trade is

diverted rather than from the creation of trade that would not otherwise exist. Given

the potential for some PTAs to reshape trade patterns to the advantage of members, it

stands to reason that states excluded from such an agreement might view it as a

threat. This perception could, in turn, spark political tension between members and

excluded states.

Despite the potential for some PTAs to provoke threat perception among states

left out of the agreement, there has been little study of the potentially aggravating

impact of PTAs on the political relationships of members vis-a`-vis nonmembers.

Rather, numerous studies emphasize that PTAs can reduce conflict propensity

between members benefiting from trade integration (e.g., Mansfield, Pevehouse, and

Bearce 1999/2000; Mansfield and Pevehouse 2000; butsee Hafner-Burton and Mont-

gomery 2012).

A focus on the peace within PTAs is not surprising, given that trade agreements

have proliferated relatively recently, during a period in which militarized conflict

between states has been rare. However, regionalism is flourishing, as multilateral

liberalization falters (as evidenced, e.g., by the stalling of the Doha round World

Trade Organization [WTO] negotiations). Recent years have witnessed the relative

decline of US hegemony, which arguably facilitated a global liberal trade regime in

the post–World War II period (e.g., Gilpin 1987; Gowa 1986; Keohane 1984; Kin-

dleberger 1973; Krasner 1976; Mansfield 1998). Simultaneously, China, along with

other developing states, has begun pursuing PTAs, as its economic and military

power grows. These developments suggest a need to examine the potentially com-

petitive nature of (at least some) PTAs, and the consequential possibility of conflict

between members and nonmembers thereof. At a minimum, exclusive PTAs could

reduce the degree to which members and nonmembers enjoy this era of reduced hos-

tilities. At worst, discriminatory trade agreements could engender zero-sum trade

policies and rising inter-bloc conflict in the coming years.

In this article, I argue that PTAs promote member versus nonmember conflict

when they reduce—at least in relative terms—the exports of nonmembers, leading

these states to perceive a threat to their economic security. Accordingly, I examine

altered trade patterns associated with PTAs as a predictor of conflict between dyads

wherein one state belongs to a PTA excluding the other state. I introduce a new tech-

nique to estimate this phenomenon using a triadic extension of the gravity model of

trade. Using estimates of the degree to which one dyadic state’s exports are affected

by the other’s membership in an exclusive PTA, I find that trade distortions resulting

in relatively lower exports for the non-PTA member are associated with a higher

probability that a dyad experiences a militarized interstate dispute (MID) or fatal

MID.

1

However, I also find that this effect becomes less consistent as dyadic trade

becomes more important to each state’s economy. As dyadic trade increases, so too

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