Networks of Military Alliances, Wars, and International Trade

We investigate the role of networks of alliances in preventing (multilateral) interstate wars. We first show that, in the absence of international trade, no network of alliances is peaceful and stable. We then show that international trade induces peaceful and stable networks: Trade increases the density of alliances so that countries are less vulnerable to attack and also reduces countries' incentives to attack an ally. We present historical data on wars and trade showing that the dramatic drop in interstate wars since 1950 is paralleled by a densification and stabilization of trading relationships and alliances. Based on the model we also examine some specific relationships, finding that countries with high levels of trade with their allies are less likely to be involved in wars with any other countries (including allies and nonallies), and that an increase in trade between two countries correlates with a lower chance that they will go to war with each other.