Peace Through Trade? Or Free Trade? | Summary (2016)

Note: This is quite an old summary. I wrote this when I was a freshman (2016), so it doesn’t read as smoothly as my current writing.

Also, one of the constraints was for the summary to be written in a single page. Hence, the horrible formatting.

McDonald’s (2004)  research  question  asks,  “Is  free  trade,  and  not  just  trade,  the  key  to  dyadic peace?”. His motivation for the study stems from a lack of consensus concerning the precise nature of the link between commerce and conflict. Consequently, McDonald argues that free trade  promotes  dyadic  peace  by  removing  protective  barriers.  To  clarify,  he  argues  that protective barriers play an important role in decisions to use military force, e.g., enhance the domestic power of societal groups likely to support war, reduces the capacity of free-trading interests to limit aggression in foreign policy, and simultaneously generates political support for the  state  often used to  build its war  machine. Furthermore, McDonald  argues  that his mechanism connecting free trade to peace is more relevant than others because it includes state-society  interactions  to  explain  foreign  policy  behavior,  which  others  have  failed  to include.  By  including  state-society  interactions,  McDonald  is  able  to  explain  how  trade promotes peace by connecting the domestic distributional consequence of commercial policy with the domestic politics of international conflict.

McDonald’s  hypothesis  is  that  greater  levels  of  protection  increase  the  probability  of interstate  conflict.  Given  the  dichotomous  dependent  variables,  McDonald  estimated  his model  with  logistic  regression  and  the  Beck,  Katz,  and  Tucker  (1998)  correction  for  time- series, cross-sectional analysis with a binary dependent variable. His unit of analysis is the dyad-year while his temporal domain is a function of how protection is measured, e.g., when using data on import duties, the cases span from 1970 to 2000. However, data utilizing the Hiscox  and  Kastner  indicator  (gravity  model  of  trade)  are  available  from  1960  to  1992. Moreover, all interstate dyads in the international system provide the spatial domain of cases. The dependent variable is the onset of a new militarized interstate dispute between dyad members i and j, sourced from the revised MID data version 3.0 and derived from Eugene 3.03 (Bennett and Stam 2000). As a categorical variable, MIDON, takes on a value of 1 in the first year  of  a  new  dispute. McDonald’s main  independent  variable  is protection  or  openness, which is operationalized in two ways. The first indicator of protection (PROTECTH), with data obtained from the World Bank Development Indicators, measures the proportion of customs revenue divided by total imports in the state possessing the greater such ratio in the dyad. The  second indicator (for  data from Hiscox and Kastner, 2002) follows a similar  logic; they present protection scores as deviations from the sample maximum, or free trade, state in their data set – the Netherlands in 1964. Both indicators of protection (PROTECTH) are continuous variables and measure the  score of the state in the dyad that possesses higher barriers to trade. Additionally, PROTECTH is measured in period t – 1 to account for potential endogeneity effects between conflict and protection. To ensure the robustness his results, in the baseline regression model, McDonald controls for the level of democracy (DEMOCRACYL), relative size of  the  largest  economy  (GDPH),  changes  in  short-term  economic  conditions  (GROWTHL), similarity of political interests (ALLY), alliance portfolio similarity (INTERESTS), differences in capabilities (CAPRATIO), presence of a great power (MAJORPOWER), geographical contiguity by land (CONTIGUITY), and logged distance (DISTANCE).

McDonald’s results show that PROTECTH is consistently positive and statistically significant, indicating that the probability of a new military dispute increases as the level of protection increases. These results support the domestic version of commercial liberalism presented by McDonald.  Additionally,  he  finds  that  when  including  both  PROTECTH  and  DEPENDL  in  his model, the coefficient on DEPENDL shrinks and is no longer statistically significant. This casts doubts on the opportunity cost and sociological variants of commercial liberalism. Overall, his results seem to support the claim that free trade enhances the prospects for peace.


McDonald, P. J. (2004). Peace through trade or free trade?. Journal of conflict resolution, 48(4), 547-572.

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