On the costs of not loving thy neighbour as thyself: The trade, democracy and military expenditure explanations behind India–Pakistan rivalry

We examine whether greater inter-state trade, democracy and reduced military
spending lower belligerence between India and Pakistan. We begin with
theoretical models 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 can be best understood in a
multivariate framework where variables such as economic performance,
integration with rest of the world, bilateral trade, military expenditure,
population are simultaneously taken into account. Our empirical investigation
based on time series econometrics for the period 1950-2005 with causality tests
suggests that reduced trade, greater military expenditure, less development
expenditure, lower levels of democracy, lower growth rates and less general
trade openness are all conflict enhancing. Moreover, there is reverse causality
between bilateral trade, militarization and conflict; low levels of bilateral trade
and high militarization are conflict enhancing, equally conflict also reduces
bilateral trade and raises militarization. We also run forecasting simulations on
6 different VECM models. Globalization or a greater openness to international
trade in general are more significant drivers of a liberal peace, rather than a
common democratic political orientation suggested by the pure form of the
democratic peace.