Economic Correlates of War in the Third World,1965-92

Abstract

Recent empirical investigations into the economic correlates of war have focused exclusively on international trade. And, with the exception most recently of Mansfield (1994), these analyses have been conducted at the dyadic level. Applying the liberal concept of opportunity costs to war in the Third World, we suggest that such costs may include the abrogation not only of trade, but also of concessional and non-concessional financial flows into the Third World, by donors or investors unwilling to venture into the uncertain environments of war. We argue that the higher the aggregated opportunity costs of war in terms of trade severance and the discontinuation of concessional or non-concessional financial flows, the less the magnitude and frequency of both interstate and civil war in the Third World. Our spatio-temporal domain includes all Third World states during the period 1965-92. The analysis is conducted at the level of the Third World. Combining data from the Correlates of War project with information from UNCTAD's Handbook of International Trade and Development Statistics, we find an inverse relationship between the relative importance of Third World exports and the magnitude of interstate war in the Third World. When adjusting for autocorrelation, a previous statistically significant impact on war of concessional and non-concessional financial flows disappears. The policy implication of our analysis is that Third World participation in international trade should be encouraged. Further analysis, however, is needed to assess the impact on the amount of war in the Third World of concessional and non-concessional financial flows.