Third-party trade, political similarity, and dyadic conflict

A growing literature maintains that trade is pacifying to interstate relations, and recent work on trade networks suggests that this pacifying effect extends to indirect trade ties. In this article, it is argued that third-party trade can also have an aggravating effect within dyads, by threatening to alter the dyadic balance of capabilities. For the state trading outside the dyad, trade gains from third parties provide incentives to demand change in the dyadic status quo and finance violent conflict when dyadic disputes arise. For the state whose dyadic partner trades with third parties, potential for the trading state to grow increasingly more powerful encourages action to prevent erosion of the non-trading state's relative power. These aggravating effects are conditional, however, on dyadic political similarity, as concerns for relative capability shifts decrease when states do not view their dyadic partners as threats. Hypotheses derived from this argument are tested on data spanning 1885 to 2000. Results support these hypotheses, suggesting important implications for the literature on trade and conflict. When extending the relative gains arguments associated with realism beyond the dyad, a clear, yet conditional, aggravating effect of third-party trade emerges.