Markets & Trade

Matthew O. Jackson: Can Trade Prevent War?

A new network model suggests that international trade alliances are considerably more effective than military ones at keeping the peace.

May 28, 2014

| by Loren Mooney



Shipping Morris Minors and Oxfords overseas from an English wharf, 1949

How can humans stop war? Obviously there’s no simple answer, but a new network model analysis of international alliances suggests that trade may be at least part of the answer. The model, developed by Stanford economist Matthew O. Jackson and economics Ph.D. candidate Stephen Nei, suggests that military alliances alone aren’t enough to stop nations from attacking one other, and also that the addition of multilateral economic trade creates a more stable, peaceful world.

While there is considerable existing research on the effects of trade and war, much of it has looked at bilateral relationships. This model focuses on multilateral interactions and considers various incentives for countries to attack, form alliances with, and trade with one another. In an attempt to understand what’s necessary to achieve a stable network with no incentive for war, Jackson and Nei first explored an alliance scenario based solely on military defense considerations, excluding trade. “The fundamental difficulty we find is that alliances are costly to maintain if there’s no economic incentive,” says Jackson. So networks remain relatively sparse, a condition in which even a few shifting allegiances leaves some countries vulnerable to attack. “Stability is not just a little bit elusive; it’s very elusive.”

Economic trade, however, makes a significant difference. “Once you bring in trade, you see network structures densify,” he says. Nations form a web of trading alliances, which creates financial incentive not only to keep peace with trading partners, but also to protect them from being attacked so as not to disrupt trade. “In the context of the alliances we have analyzed, trade motives are essential to avoiding wars and sustaining stable networks,” the authors wrote in their paper, Networks of Military Alliances, Wars, and International Trade.


Euro statue

The Eurozone has promoted peace and trade | Associated Press Photo by Bernd Kammerer

Their findings coincide with two major global trends since World War II: From 1950 to 2000, the incidence of interstate war has decreased nearly tenfold compared with the period from 1850 to 1949. At the same time, since 1950 international trade networks have increased nearly fourfold, becoming significantly more dense. “In the period before World War II, it was hard to find a stable set of alliances,” says Jackson. The probability of a lasting alliance was about 60%. “You have almost a coin-flip chance that the alliance won’t still be there in five years,” he says. In Europe in the 1870s, for example, German chancellor Otto von Bismarck sought peace with “balance of power” diplomacy, which crumbled leading up to World War I. “Then in the past 50 years or so, there’s been a surprising global stability.” The impact of economic interdependence is especially apparent in Europe, Jackson says, where the Eurozone has promoted not only peace and increased trade among nations, but also labor mobility.

Very costly wars still occur, of course, but Jackson notes that the most war-torn places in recent history have tended to be those with fewer global trade alliances. For example, the Second Congo War from 1998 to 2003 and beyond, which killed more than four million people and is the deadliest war since World War II, involved eight African nations with relatively few trade ties. “Then look at the Kuwait situation,” says Jackson, referring to U.S. intervention in the first Gulf War to protect oil supplies. “Economic interest drives a lot of what goes on in terms of where nations are willing to exercise military strength.”

There are other real-world factors that have no doubt influenced war and trade trends since World War II, among them the proliferation of nuclear weapons — “Changing military technology can help maintain stable arrangements,” says Jackson — the Cold War, an increase in worldwide wealth levels, and the introduction of container shipping in the 1960s, which has helped facilitate low-cost, long-range trade.

Still, Jackson and Nei’s theoretical model suggests that trade alliances play a critical role. And in fact economic allies may be the most worth striving for in developing areas. “Maybe wars like the Second Congo War won’t be occurring in the future if there’s more trade with African nations,” says Jackson. “Economic interests can really help us have a more peaceful world than we already have.”

Matthew O. Jackson is the William D. Eberle Professor of Economics at Stanford, and earned his PhD in economics from Stanford GSB in 1988.

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