Militarism and Trade

by Will Wilkinson on March 7, 2010

Daron Acemoglu and Pierre Yared find that:

increased nationalist and militarist sentiments, measured by military spending and size, are negatively associated with trade. A country is less likely to open up to neighbours if the country is also becoming more militarised, and trade between two countries grows less rapidly when both countries become more militarised.

I wonder if this supports the idea that bilateral trade increases between countries if both free-ride off the military spending of a third benevolent hegemon.

Mike in PA

Hey will, I was wondering what your thoughts were on Mr. Johan Goldberg's hilarious take-down of Tom Friedman.

Here's the link:
http://nrd.nationalreview.com/article/?q=ZTMzZTc3YWQ5MTgzN2I1MTIwN2QyYWFlYTY4NDg5NmY=
LorenzofromOz

Since regimes choose to spend more on military matters, that is either a response to perceived threat or an attempt to increase power (or both). Since we are no longer in a situation where war grabs trade nodes (Saddam Hussein's grab for Kuwait being an exception which the global system combined against relatively easily given the US was prepared to play a lead role) then it would seem to indicate a policy choice against openness and so against trade (both by the regime and those considering undertaking trade).

A settled international order would suggest militarism as a less useful option. It is where opportunities for increasing relative power seem more available that militarism becomes more of an option. But regional uncertainties are enough to open that possibility up. So I suggest it is more an issue of how clear (and how challengeable) relative power seems to be. The collapse of the Soviet Empire did, after all, create all sorts of regional uncertainties. Including regions where the US was much less likely to intervene since countering Soviet action was no longer a driver of policy.
Lester Hunt

I've always assumed that this correlation is at least partly conscious and deliberate. That is, countries that plan to go to war know that autarky is militarily advantageous (ie., you lose less when borders close due to war breaking out). Also, agents who do trade with foreign countries know that closing borders would be disastrous for them and so would agitate against going to war.

I think this means that the answer to your free riding question is yes.