Preventing civil conflict: the trade and trust solution

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Strong institutions or democracy don’t always appear to alter the risk of conflict. Dominic Rohner and Mathias Thoenig offer a different take on the causes of civil conflict. Adopting an economic perspective, the authors explore the interconnected relationships between trade, trust and war, tracing the root causes of conflict to mistrust and a breakdown of trading relationships.

4 min read

Dominic RohnerDominic Rohner is a professor of Political and Institutional Economics. Several of his recent papers have studied the role of natural resources and social capital for explaining armed conflict.
ThoenigMathias Thoenig is a professor of Macroeconomy. His research interests include the impact of financial development on volatility and the interaction between globalization, cultural identity and wars.

There’s rarely a moment when civil conflict isn’t raging somewhere in the world. In June 2014, for example, there was internecine struggle in Georgia, tribal unrest in the Niger Delta, civil war in Syria, insurgency in Iraq, and many other conflicts worldwide. The repercussions are often catastrophic. During the second half of the 20th century 16 million people are estimated to have died due to civil conflicts. But if the most immediate cost is counted in lives, the social and economic impact can last for years, transcending generations and reverberating around the world.

Understandably, nations and international institutions go to great lengths to keep the peace, and deter and avoid fighting whenever possible. Popular methods for minimizing conflict include peacekeeping efforts backed by international bodies such as the United Nations or the African Union, as well as externally influenced regime change. Yet all too often these interventions are unsuccessful.

The more that’s known about the causes of civil conflict, the greater the chance of finding a solution. Previous research has focused on the institutions of governance, but results are inconclusive. Some developing countries with strong institutions still suffer civil conflict, while other countries with weak institutions don’t. Having a democratically elected government doesn’t appear to alter the risk of conflict, either.

Now, though, economists Dominic Rohner, Mathias Thoenig and Fabrizio Zilibotti offer a different take on the causes of civil conflict. Adopting an economic perspective, the authors explore the interconnected relationships between trade, trust and war, tracing the root causes of conflict to mistrust and a breakdown of trading relationships.

You might take time to learn your supplier’s native language, but only if you believe that they will make an effort to study your language.

Cross-community trade relies on trust. People from different communities in a country interact through a range of business relationships. Seller-buyer, employer-employee, supplier-producer, and lender-borrower, are more obvious examples. Getting those relationships to work well requires a significant investment in terms of understanding the world of the people you engage with. That might involve, for example, learning languages and customs, or developing cross-community social networks. The extent to which you are willing to make such an investment, and therefore the quality of the business relationship, partly depends on how much you trust the people you’re dealing with to make a similar investment. You might take time to learn your supplier’s native language, but only if you believe that they will make an effort to study your language.

At the same time, participating in conflict erodes trust. As trust is undermined people are less likely to invest in cross-community business relationships, weakening trade links, and creating distance between communities. Recurring conflict may fill the gap. Unfortunately, it is an effect that persists over time. The attitudes and beliefs of future generations, in this case mistrust and the unwillingness to build business relationships, are shaped by the generations that precede them.

If trust and the strength of business relationships really are critical factors in perpetuating civil conflict, and the authors’ confirmation of their ideas using game theory suggests that they are, then a number of preventative measures seem possible.

If conflict appears a more lucrative option than cross-community trade, investments in building cross-cultural relationships may be abandoned in favor of conflict.

If conflict appears a more lucrative option than cross-community trade, investments in building cross-cultural relationships may be abandoned in favor of conflict. Such a choice can be discouraged, though, the erosion of trust limited, and chances of war minimized, through international measures such as arms embargoes and trade sanctions – banning natural resource imports from a particular regime, for example.

Trust building measures, targeted at increasing inter-ethnic business relationships, should also reduce the likelihood of civil conflict. These might, for example, include efforts to boost the value of trade and therefore the attractiveness of investing in cross-community ties. They might be aimed at breaking down trade barriers through public education initiatives that promote the teaching of different languages and cultures. At the same time, the authors suggest beliefs can be nudged in a desirable direction through initiatives such as campaigns that document and publicize the success stories of inter-ethnic business relationships, and the promotion of joint ventures.

International peacekeeping efforts aimed at “stopping the shooting” are largely ineffective. That much is clear from the daily diet of bloodshed, violence, and misery, dished up by the news media covering civil conflicts around the globe. But maybe the way to stop the fighting is not more armed soldiers on the ground. Perhaps, as the authors suggest, the long term solution to eradicating conflict lies in business rather than a big-stick, in simple economics and the trust and understanding that arises from building closer cross-cultural relationships through trade.


Read the original research paper: War Signals: A Theory of Trade, Trust and Conflict, Dominic Rohner and Mathias Thoenig, Faculty of Business and Economics of the University of Lausanne (HEC Lausanne), Fabrizio Zilibotti, University of Zurich.


Featured image by Jayel Aheram / Flickr CC