peace creation and peace diversion

It is widely believed among historians and political scientists that the most important reason for establishing the European Coal and Steel Community (ECSC) in 1951—the original predecessor of the European Union (EU)—was the desire to avoid another devastating major war in Europe. In the words of the Schuman Declaration, which was presented by French foreign minister Robert Schuman on 9 May 1950 and proposed the creation of the ECSC, the pooling of coal and steel production would make any war between age-old rivals France and Germany “not merely unthinkable, but materially impossible.”[1]

The pacifying role of the EU and its forerunners was recognized by the Norwegian Nobel Committee in 2012, which awarded to the EU the Nobel Peace Prize. In its official announcement, the committee stated, “The stabilizing part played by the EU has helped to transform most of Europe from a continent of war to a continent of peace.”[2]

In the article “Regionalism and Conflict: Peace Creation and Peace Diversion”—published in the Journal of International Economics in September 2016—Prof. Costas Hadjiyiannis, Dr. Maria S. Heracleous and Prof. Chrysostomos Tabakis investigate both theoretically and empirically the implications of preferential trade agreements (PTAs) for interstate conflict. In particular, they explore whether, in line with the EU case, PTAs reduce the likelihood of conflict between member countries. At the same time, since PTAs have important ramifications for the bilateral trade relationship between member and non-member countries, they also analyze the impact of PTAs on the likelihood of war between PTA members and non-member states.

Their dynamic game-theoretic model shows that a PTA, in the form of either a free-trade area (FTA) or a customs union (CU), renders the eruption of war between member countries less likely. Hence, their results establish that PTAs exert a “peace-creation” effect on their members, which is in line with the EU experience. However, their analysis illustrates that both FTAs and CUs can also be detrimental to peace as they increase the likelihood of conflict between member and non-member countries, producing a “peace-diversion” effect. At a broad level, the peace-creation and peace-diversion effects of PTAs that emerge from the analysis of Hadjiyiannis, Heracleous and Tabakis are somewhat reminiscent of the trade-creation and trade-diversion effects of PTAs originally identified by Viner (1950).

They finally use data on militarized interstate disputes from the Correlates of War project to empirically test their predictions. Their sample consists of 260,781 annual country-pair (“dyadic”) observations over the period 1958–2000. After carefully addressing the possible endogeneity bias with respect to membership of FTAs and CUs, their empirical results provide robust evidence of both peace creation and peace diversion in relation to PTA establishment. In terms of economic magnitude and focusing, for instance, on the EU, their estimates imply that when the United Kingdom joined the European Economic Community (EEC)—the predecessor of the EU—in 1973, its probability of conflict with Argentina increased by 0.055 percentage points, while right after Greece became a member of the EEC in 1981, its probability of conflict with Turkey increased by 0.041 percentage points.

ByProfessor  Chrysostomos TABAKIS