Abstract We examine whether greater inter-state trade, democracy and reduced military spending lower belligerence between India and Pakistan, beginning with a theoretical model covering the opportunity costs of conflict in terms of trade losses and security spending, as well as the costs of making concessions to rivals. Conflict between the two nations is best understood in a multivariate framework where variables such as economic performance, integration with rest of the world, bilateral trade, military expenditure, democracy orientation and population are simultaneously considered. Our empirical investigation based on time series econometrics from 1950 to 2005 suggests that reduced bilateral trade, greater military expenditure, less development expenditure, lower levels of democracy, lower growth rates and less general trade openness are all conflict enhancing. Globalization, or a greater openness to international trade with the rest of the world, is the most significant driver of a liberal peace, rather than a common democratic orientation.

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Keywords Conflict and economic development, Democracy and conflict, Inter-state conflict and trade
JEL Economic Integration (jel F15), International Conflicts; Negotiations; Sanctions (jel F51), National Security; Economic Nationalism (jel F52)
Persistent URL dx.doi.org/10.1007/s10101-010-0074-y, hdl.handle.net/1765/20109
Mamoon, D, & Murshed, S.M. (2010). The conflict mitigating effects of trade in the India-Pakistan case. Economics of Governance, 11(2), 145–167. doi:10.1007/s10101-010-0074-y