Trade and asymmetric alliances

Abstract

Alliances are usually understood as a way for states to aggregate military capabilities in the face of a common threat. From this perspective, the willingness of relatively powerful states to form alliances with much weaker partners is puzzling. The weaker ally often adds little to the stronger state’s security and may increase its chance of military entanglement. This article presents evidence that international trade helps explain these alliances. States that have the power to do so have incentives to protect their trading relationships against interference from either third states or internal conflict. Alliances are one means of providing this protection. This argument differs from most other research on trade and alliances, which reverses the causal arrow and suggests instead that alliances increase trade. Empirical analysis indicates that trade increases the probability of alliance formation in major power—minor power dyads and decreases the chance that alliances will dissolve. These results are robust to a variety of changes in the specification of the model and the data used for estimation. They also do not stem from any influence of alliance relationships on trade. An analysis of the effect of alliance formation on change in the level of bilateral trade turns up no evidence that the formation of an alliance increases commerce.