Tricks of the Trade-Peace Relationship: How and Why Conflict Affects Commerce Between India and Pakistan

Abstract

This thesis utilizes an inductive dyadic study of India and Pakistan to investigate the relationship between conflict and trade. While one body of research addresses how trade impacts peace, other studies investigate how peace or conflict impacts trade. What these two research categories have in common is a lack of consensus regarding the impacts. Some studies that investigate how trade impacts peace find that increased trade leads to peace, while others find that this depends on a number of other factors. Additionally, while some research shows that conflict negatively impacts trade, other studies show that this relationship is insignificant, or dependent on other aspects. This study steps into the realm of variant conclusions with a case-study approach to one of the most conflict-laden dyadic relationships in the world: that of India and Pakistan. Since Partition in 1947, the two nations have been feuding. It has become of increasing domestic and international importance to address this rivalry, as the two states are in a geopolitically strategic region, can contribute to the global economy, and are nuclear. Because instances of conflict are well-defined, I look at how and why trade was impacted by four different conflicts between these nations: the Bangladesh War, the Kashmir Insurgency, the Kargil War, and the Mumbai attacks. The trade values that correspond with each conflict vary widely: while the Bangladesh War leads into a period of frozen trade, a sharp increase in trade follows the Kargil War. In order to analyze why these corresponding trade values are different, I utilize an explanatory framework that focuses on external factors, interstate and international response, and internal factors, the domestic situation of both India and Pakistan, leading up to, during, and after each conflict. This framework also helps to address the question of what other factors respond to conflict and correspondingly affect trade. Three main conclusions arise from the utilization of this framework: first, consistency of interstate contact and presence or lack of trade-specific dialogue protect trade from suffering dramatically from conflict; second, international attention to conflict helps to insulate trade from negative effects after conflict; and lastly, political fragmentation in Pakistan and India’s economic situation both contribute to trade effects after conflict. Policy implications pertinent to India and Pakistan, individually, and to the international community in its affairs regarding the subcontinent can be drawn from this analysis and its conclusions. This study also provides impetus for further research regarding trade and conflict or peace between specific country-pairs, in order to better address commercial and diplomatic relations and to better understand the relationship between peace and trade, in general.