The East Asian Peace as a Second-order Diffusion Effect1

Benjamin E. Goldsmith ben.goldsmith@sydney.edu.au

Department of Peace and Conflict Research,

Uppsala University, Sweden and

Department of Government & International Relations University of Sydney

Australia

While East Asia is often cited as a region at high risk of interstate military conflict, it has remained free of major hostilities since the 1979 Sino-Vietnamese war. In this article I propose a second-order diffusion dynamic to help explain this East Asian peace. It is based on the stimulus event of China’s shift in political-economic models that began in 1978. While the “flying geese” diffusion of open trading and developmental state policies in East Asia began earlier, China’s shift contributed to dramatic region-wide change in a key variable: the volume of trade flows. Intra-regional trade interdependence did not increase greatly because strong economic growth accompanied increased intra-regional trade flows. Rather than interdependence, my argument focuses on the utility of high volumes of trade for interstate crisis signalling to avoid escalation to war. The first-order diffusion of trade-based strategies, I argue, had second-order effects on international relations in East Asia. While China was not the first adopter, diffusion of liberalization to this large, developing economy increased regional trade flows directly and indirectly via increased competitive pressures. The resulting higher flows of intra-regional trade then inhibited the escalation of interstate conflicts. Statistical analyses support my contentions while controlling for a number of other plausible contributing factors.

                                                            1 Support from the Kolleg-Forschergruppe “The Transformative Power of Europe” at Freie

Universität Berlin, the East Asia Peace Programme at Uppsala University, and the Australian

Research Council (DP1093625) is gratefully acknowledged. An earlier version of this article was

presented at the Workshop “Regional Dimensions of Diffusion,” Berlin, 5-6 July 2013. I am

grateful for helpful feedback from Tanja Börzel, Kevin Clements, Bates Gill, Aida Hozic, Detlef

Jahn, Thomas Risse, Richard Rosecrance, Etel Solingen, Art Stein, David Zweig, all workshop

participants, and anonymous reviewers.

Thisisthepre‐peerreviewedversionofthefollowingarticle:BenjaminE.Goldsmith.“TheEastAsianPeaceasaSecond‐orderDiffusionEffect,”InternationalStudiesReview(inpress).,whichwillbepublishedinfinalformathttp://onlinelibrary.wiley.com/journal/10.1111/%28ISSN%291468‐2486. 

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Some analysts of international security point to East Asia as a current and future zone of high risk

for international war (Mearsheimer 2006, 2010, Kang 2009). As a center of great-power rivalry,

with numerous contentious territorial disputes, and an alarming mix of enduring rivalries, nuclear

weapons, and historical grievances, there can be little doubt that East Asia in recent decades has

had, and continues to have, a real prospect of international war. On the other hand, a number of

scholars claim to have identified a “Pax Asiatica” (Solingen 2007) or “East Asian Peace”

(Tønnesson 2009) which has endured since roughly 1979. There has been no interstate war in this

historically war-prone region over this period.

In this article I propose an explanation for this regional pattern of contentious relations that

do not escalate to large-scale conflict, based on a second-order diffusion argument that can be

expressed in terms of agents, mechanisms, and outcomes (Solingen 2012:633). A plausible

explanation for the lack of serious interstate conflict in East Asia is the diffusion to, and within, the

region of economic liberalization, including trading-state practices (Rosecrance 1986, Simmons,

Dobbin, and Garrett 2008). The spread of export-led growth (ELG) development strategies in East

Asia is sometimes characterized with a “flying geese”2 metaphor, although this may

underemphasize states’ policy differences (Bernard and Ravenhill 1995, Haggard and Huang 2008).

Heavy emphasis on trade is universally acknowledged as part of this model. Increased

volumes of trade among East Asian states, I propose, served to dampen the chances of conflict

escalation between them. I do not argue for a direct diffusion process (Strang 1991, cited in

Solingen 2012:632) explaining regional reductions in interstate conflict due to decision makers’

increased value for peace itself.3 Rather, I suggest these patterns are an indirect consequence of the

                                                            2 Literally the “wild-geese-flying pattern” (Akamatsu 1962:11).

3 Most and Starr (1980:932) provide an early analysis of the direct diffusion of international war

using a similar definition that “an event may alter the probability of subsequent events,” and they

cite earlier literature. For a recent review of the vast diffusion literature in political science see

Graham, Shipan and Volden (2013). 

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regional spread of open economic relations, which provides useful tools for clearer signalling of

security interests and intentions.

China was not among the earliest adopters of the developmental-state, ELG model. Japan is

usually considered the leader, followed by “tigers” including Taiwan, South Korea, and Singapore,

and then others such as Indonesia (Leftwich 1995, Woo-Cummings 1999, Wong 2004). Japan’s

approach to development had roots in the late 19th century Meiji restoration - a major historical

instance of policy diffusion due to a state learning from the successful practices of others (Western

empires), in order to compete with them (Reischauer 1970). It emphasized free trade (Johnson

1982:88). Japan’s preference for strong, strategic regulation of exports for growth with stability,

introduced in 1925, was largely home-grown (Johnson 1982:98).

But, in terms of impact on intra-regional trade flows, I consider the key “stimulus”

(Solingen 2012) to be the shift in Chinese economic orientation introduced by Deng Xiaoping in

1978. This is due not only to China’s size, but also level of development, which, unlike Japan,

caused it to compete more directly with other less-developed exporting regional states. While the

mechanism of diffusion for the post-World War II Japanese example appears to be emulation

(including China’s emulation of Japan), the post-1978 diffusion of expanded trading practices

inducing rapid intraregional trade increases is more likely one of competition. No other region saw

such dramatic trade-flow increases, and East Asia also exhibited the greatest reduction in serious

interstate conflict.4 Summary data on trade and conflict are presented in Table 1 and Figures 1 and

2; further cross-regional comparisons are provided in the online appendix. The steep increase in

East Asian trade volumes is evident in Table 1 and Figure 1 (left axis), while the increase in

interdependence (trade as a portion of Gross Domestic Product [GDP] or of a state’s share of trade

with all partners) is not as great (right axis in Figure 1). Figure 1 provides evidence from two

                                                            4 As in Figure A2 in the online appendix, the Middle East and North African (MENA) region also

saw a reduction in conflict escalation after the 1970s, but not as great. The comparable frequencies

to those in Table 1 for MENA MID escalation are 0.070 for 1949-1978 and 0.037 for 1979-2001.

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different trade datasets (Gleditsch 2002 and Barbieri, Keshk, and Pollins 2008 [Correlates of War,

COW]). Conflict data are from the militarized interstate dispute (MID) dataset (Ghosn and Bennett

2007). The post-1978 dropoff in conflict escalations to over 250 battle deaths in East Asia is evident

in Table 1 and Figure 2, while the frequency of conflict onsets overall shows little change. These

patterns provide initial support for my expectations, which I further test with regression models.

Table 1 about here

Figures 1 & 2 about here

My argument requires four conjectures to be true. First, open economic policies must diffuse

to East Asia. Second, the timing of this first-order diffusion in East Asia must be related to the

changes introduced in the People’s Republic of China (PRC) in 1978, such that it accelerated after

that date. Third, this diffusion of open economic policies must have led to an actual increase in

trade flows in the region. And fourth, trade volume must be negatively associated with the

likelihood of interstate conflict escalation in the region, producing a pacifying second-order effect.

If these four conjectures find support, then I claim that my second-order diffusion argument

provides at least part of the explanation for the observed East Asian peace. First, dealing with

conjectures 1-3, I discuss the diffusion of liberal economic policies and open trade relations in East

Asia, relying on literature review as well as analysis of trade statistics. Second, I provide a

theoretical foundation for conjecture four regarding the second-order effect of trade volume on

conflict escalation, and present supporting statistical evidence. I emphasize that my second-order

causal argument focuses on total trade flows among pairs of intra-regional states (dyads), not dyadic

trade interdependence as a share of all trade or national product.

First-order Diffusion of Economic Liberalization in East Asia

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In this section I contend that there has been diffusion of liberal economic policies and practices

globally, and that East Asia is a region which has experienced wide and deep diffusion of these

policies. Crucially, the East Asia policy mix emphasized exports, increasing trade with the rest of

the world, and within the region. This will provide evidence for the first three conjectures, regarding

the fact of policy diffusion, it’s timing, and its impact on trade flows. I use “East Asia” to refer to

both Northeast and Southeast Asian states in the post-World War II period, specifically: Cambodia,

China, Indonesia, Japan, Laos, Malaysia, Burma/Myanmar, North Korea, Philippines, Republic of

Vietnam, Singapore, South Korea, Taiwan, Thailand and Vietnam (Democratic Republic of

Vietnam / Socialist Republic of Vietnam).5

There is considerable evidence that the second half of the 20th century witnessed diffusion of

liberal economic policies within and beyond Western Europe and North America. In an important

study, Garrett, Dobbin, and Simmons (2008:346-347) find “strong support for both competition and

emulation” as mechanisms of the diffusion of liberalization globally. “Countries that compete with

each other for investment from footloose global capital must take seriously the policies of

competitor nations… [and] epistemic communities such as those among the fraternity of

professional economists can have marked impact on what governments do, by influencing what

they consider the right thing to do in a world clouded by uncertainty.” In East Asia, this process was

influenced by Japan’s successful development, as described by Johnson (1982) and others.

The diffusion of the developmental state model in East Asia is an oft-told story. Japan is

uncontroversially considered the first adopter or “generation”. As Simmons, Dobbin, and Garrett

(2008:29) write: “the Japanese ‘miracle’ provided an economic model for Asia and beyond.” But,

the regional spread of ELG and developmental-state practices to second and third generation states

before 1978, even to relatively large countries like Taiwan (in 1949), South Korea (in 1960), and

                                                            5 Brunei is excluded because it is too small by population size to be included in some of the datasets

used.

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Indonesia (in 1966),6 did not stimulate a large rise in intra-regional trade flows. The focus was on

exporting to North America and Western Europe, markets large enough to absorb exports from all

of these. Regional states were, however, often integrated into fragmented production chains

dominated by Japanese, U.S., and European multinationals, increasing intra-firm trade within the

region.

China’s regionally catalytic 1978 shift seems to be the result of diffusion through emulation

resulting from the PRC’s own failed economic policies and its observation of successes outside of

Soviet-type systems (Vogel 2011). In such situations states facing complex policy choices may be

especially likely to turn to foreign examples of success (Goldsmith 2005). Vogel (2011, chapter 4)

notes the extensive study of foreign economies, including many trips abroad, by Deng and other

senior leaders. These led to thinking about how to emulate the success of nearby states, for example

the textile production in Japan, Taiwan, South Korea, and Hong Kong, although attention was also

paid to Western Europe and parts of the developing world (Vogel 2011:224). China also benefitted

directly from regional diffusion of the knowledge and capital of Taiwanese and Hong Kong trading

firms, hastening the pace of trade expansion. Brandt and Rawski (2008:12) write: “The opening of

south China provided an ideal opportunity for the Hong Kong and Taiwan entrepreneurs; it was also

a remarkable stroke of luck for China's nascent reforms. The offshore entrepreneurs uncoupled the

pipeline they had established to world markets from their original home bases and reconnected it to

China's new export zones.”

While recognizing the Japanese model as a stimulus for regional diffusion of ELG and

developmental state policies, my argument points to the important stimulus China’s adoption of this

approach gave to the further diffusion of trading-state practices, including increasing intra-regional

trade, mainly through the mechanism of competition (Simmons and Elkins 2004). There is abundant

evidence of increased competition between China and other East Asian states (Wang 2001, Chen

                                                            6 A list of dates of adoption of developmental state policies can be found in Goldsmith (2013a:186).

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and Shih 2010, Corning 2011). China itself also became an important export market for other states

in the region (Ravenhill 2006).

The distinct regional consequences of China’s relatively late (fourth generation) adoption of

the model are not surprising. It led to a dramatic increase in PRC productivity and wealth, the

regional implications of which were different for an economy of about 975 million people, than for

others that followed Japan’s lead. China not only joined the flock of flying geese and started

moving up the value ladder; the sheer size of its exports threatened to crowd out other states from

regional production chains and developed-country markets.

China’s annual rate of economic growth increased from close to 4% before 1978 to around

9.5% in the quarter century after 1978 (Haggard and Huang 2008). Trade was an important part.

“[T]he combined value of exports and imports as a share of GDP, jumped from under 10 percent

prior to reform to 22.9 percent in 1985, 38.7 percent in 1995, and 63.9 percent in 2005 – a level far

higher than comparable figures for any other large and populous nation” (Brandt and Rawski

2008:2). As China’s exports grew, both within existing regional production chains and through new

regional and global export niches, it pushed other exporters in the region to adapt in order to

compete, creating more growth and intra-regional trade in the process. As Haddad (2007:2) writes:

...the emergence of a large fourth-generation economy, China, has created a

supply of labor-intensive intermediate inputs sufficient to push second- and third-

generation economies up-market in terms of the activities they perform. Trade has

thus contributed to complementarity between the production structures and the

development paths of countries in the region, even as it has fostered rivalries

between countries for market share abroad. Income growth in one country

increases the demand for intermediate inputs produced in nearby countries, which,

by allowing input producers to enjoy scale economies, lowers input production

costs and enhances regional growth.

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Aggregate regional trade data are consistent with this. Table 1 and Figure 1 show the steep

increase in average intra-regional trade flows. Prior to Deng’s reforms, there was no similar change.

Nor did any other region of the world see such a dramatic shift at the same time, making it unlikely

that there was another cause at the global level (Table 1 and Figure A1 in the online appendix; the

West had high trade volume levels from the early 1970s). Although economic liberalization

certainly diffused globally, as Simmons, Dobbin, and Garrett (2008:35) note, “[w]hile they have

been lauded as promoting development, East Asian trading policies have not caught on [in other

regions].”

An econometric approach can further demonstrate that increases in non-Chinese intra-

regional trade followed increases in overall Chinese exports, even after controlling for standard

trade determinants. Table 2 provides two time-series cross-sectional regressions based on gravity

models of trade (Deardorff 1998). The dependent variable is the natural logarithm of annual

inflation-adjusted intra-regional trade volumes among East Asian states. Dyads including China are

dropped in order to test indirect causal mechanisms, in particular competition, and to avoid

endogeneity. In addition to the standard gravity variables of logged distance and the GDP of each

state, I also include each state’s regime type, and a lagged measure of the dependent variable, a

powerful control for confounding factors as well as serial correlation. Trade data are from Gleditsch

(2002). Data for other variables are from standard sources – details can be found in the online

appendix.

Table 2 about here

Model 1 includes the key independent variable of the lagged volume of Chinese exports to

the rest of the world. One-, two-, and three-year lags are included because the diffusion process

might occur over a longer period than just one year. This tests whether the total value of Chinese

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exports puts upward pressure on dyadic trade volumes between other East Asian states, excluding

China. Model 2 examines a slightly different aspect of diffusion, using the lagged change in China’s

total global exports, also for periods of one, two, and three years. This tests whether the increase (or

decrease) in Chinese exports from year t-2 to year t-1, (or t-3 to year t-1, or t-4 to year t-1) is related

to dyadic trade volumes among East Asian states excluding China in year t. My diffusion argument

leads to such expectations, because Chinese trade with other partners compelled other East Asian

states to adjust their strategies. The effects should be positive if the PRC’s high exports, or their

steep increases, put upward pressure on non-Chinese intra-regional trade, while controlling for other

determinants of trade, as my framework would expect.

Both models yield supporting evidence for my expectations. Among East Asian dyads

excluding China, with strong controls for other determinants of their trade including a lagged

dependent variable, China’s global export volume in year t-1 is positively and significantly related

to subsequent increases in dyadic trade volumes (Model 1). While the coefficient for the lag at t-3 is

negative and nearly significant (p = .102), its magnitude is smaller, and the linear combination of all

three PRC trade lags in the model is positive. The rapid increases in Chinese exports are also

positively associated with increases in intra-regional trade in Model 2. The three-year increase in

Chinese exports is positively associated with increases in trade among other East Asian dyads, and

significant at the 90% level (p = .09). Although the other indicators of change have negative sign,

they are far from significant and the linear combination of all three PRC trade change variables is

positive. These two measures of slightly different aspects of the hypothesized diffusion pattern

provide systematic empirical support for my argument. Combined with the discussions in the

economics and political economy literatures, the support for China’s role after 1978 as a stimulus

for regional trade is considerable. The first three of my conjectures regarding regional policy

diffusion, its timing, and its impact on intra-regional trade volumes, find support.

Second-Order Diffusion of Interstate Peace

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In this section I examine the fourth conjecture, that higher trade volumes reduce the likelihood of

interstate conflict escalation in East Asia. While most of the literature on the relationship between

trade and interstate violence focuses on trade interdependence, my argument emphasises large trade

flows (Goldsmith 2013a&b). The second-order-diffusion argument provides a compelling temporal

fit to the data: while the frequency of low-level conflict has not changed dramatically, and neither

has interdependence, there has been a lack of escalation of these disputes to higher levels of deadly

violence, as trade volumes increased greatly (Table 1, Figures 1 and 2). In the remainder of this

section, I first discuss the logic of my causal argument, and then present statistical analysis to test it.

Pacific Effects of Trade Flows

Following bargaining models of war (Fearon 1995, Reiter 2003), I consider interstate conflict as a

communication process involving two stages: the initiation of militarized confrontation, and its

escalation to war or resolution without warfare. This approach sees states as often unable to

communicate their true interests and intentions clearly because of incentives to bluff and

exaggerate, given uncertainty about the potential adversary’s resolve, and even capabilities. While

generally states would prefer to negotiate rather than pay the additional costs of war, and risk

losing, they find it hard to bargain effectively. In order to overcome their lack of credibility, one

option states have is to communicate with “costly” signals, such as politically risky public

commitments to fight, or economically costly trade embargoes (Stein 2003).

In the initiation stage, states consider whether or not to challenge each other militarily. This

often takes the form of verbal threats, but can also involve actions such as troop movements or

limited hostilities. Demands are communicated regarding the issue at stake, such as territory (as is

often the case in maritime disputes in the South China Sea) or foreign or domestic policy (such as

China’s objection to Vietnam’s invasion of Cambodia in 1978). Numerous studies show that

conflict onset is inhibited by high levels of trade interdependence (e.g., Xiang, Xu, and Keteku

2007, Hegre, Oneal, and Russett 2010). The literature emphasises the high opportunity costs of lost

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trade which prevent states from seriously considering violence, and also points to the ability of

states to send credible signals about their interests and intentions by showing a willingness to incur

those costs (Gartzke, Li, and Boehmer 2001, Morrow 1999). The concepts of dependence and

interdependence imply that the state overall depends on trade for its economic well-being. This is

commonly measured as the proportion of a state’s GDP represented by the trade with the

adversarial state, or the proportion of the state’s total trade with all partners. Interdependence

specifically indicates a high degree of mutual dependence on the bilateral trade relationship.

However, less is written about the role of trade in the bargaining process after the militarized

conflict initiation stage, when states may try to signal their resolve to escalate, or their willingness

to back down for the right concessions. When considering the escalation of a conflict to war or

large-scale fighting, I emphasize the role of overall trade flows between trading partners. Foreign

policy decision makers will search for signalling tools to avoid escalation to serious violent conflict

during a militarized crisis. However, the overall interdependence of one’s own state and the

adversary will already have been observed in the onset stage and “priced in” to each side’s

assessment, such that new signals based on overall interdependence will not add new information

for either side.

My argument is that high dyadic trade volumes can provide some useful additional tools.

Specifically, a greater volume of trade will increase the probability that there are either traded

good(s) of high significance, or a very large number of some sort of goods, or both, which might be

used to further signal resolve. China’s “rare-earth metals” exports to Japan, which were cut in 2010

in the midst of tensions over disputed islands, are an example.7 Signalling might clearly convey

willingness to lose the trade, perhaps by curtailing trade flows before military hostilities escalate. Or

it might use costly goods to make concessions or signal a desire to reduce tensions, such as

removing a trade barrier or offering trade expansion. Thailand repeatedly referred to the importance

                                                            7 King and Armstrong (2013) argue that China did not intend to link rare-earth exports to its

tensions with Japan, although it was widely perceived in this way.

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of cross-border trade in consumer goods, and offered trade-related loans, in diplomatic overtures to

reduce militarized tensions in its border dispute with Cambodia (Bangkok Post, 16 October 2008,

31 January 2009, 11 June 2009). Such high-value and/or high-volume trade issues often have

political or symbolic importance beyond their economic value, and they might have special

cognitive appeal, for example due to their prominence in daily life (food, water) or their perceived

essential nature (oil or other energy resources). Such cognitively vivid tools can have

disproportionate weight in diplomacy and decision making (Jervis 1976). In two other studies, I

present statistical analysis and qualitative evidence supporting this process (Goldsmith 2013a&b).

Of course, there are many factors to consider when assessing patterns of conflict and its

absence for any given dyad. But it is useful to consider the degree to which trade volume might

provide a compelling explanation in a specific case. Relations between China and Vietnam were

highly conflictual even after China adopted its economic reforms in 1978. Although the last full-

scale war (incurring tens of thousands of battle deaths, well over the common threshold of 1000)

occurred in early 1979, two disputes in the 1980s also escalated to over 250 battle deaths. In 1986

Vietnam adopted serious market reforms, however this did not coincide with an immediate end to

the escalation of border tensions to deadly clashes (Thayer 1987). But no further such escalations

occurred after the rise in actual dyadic trade volume, which was accelerated by the formal

resumption of trading relations between the two in 1990. There have frequently been instances of

high tensions between China and Vietnam since 1990. None has escalated to large-scale violence,

while trade volumes have remained high.8

Econometric Analysis

                                                            8 Figure A3 (online appendix) provides data for conflict and trade volume for six important and

conflict-prone East Asian dyads. High trade volume is associated with an absence of conflict

escalation.

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In this sub-section I summarize my econometric strategy and results testing the relationship

between trade volume and conflict escalation. I use three conditional probit regression models as

well as three probit selection models of international conflict escalation, including my key causal

variable and controls.9 The data are observations for East Asian dyads in the years in which they

experience a conflict onset (i.e., conditional on there being a MID onset). The dependent variable

(Conflict Escalation) is coded “1” if that conflict escalates to serious levels of violence, “0”

otherwise. The full list of cases with descriptive statistics is presented in Table A1 in the online

appendix. To establish the robustness of the results, I use six different models with different

combinations of specifications of the key variables (Table 3). I prefer the conditional probit

specification for its simplicity, but the selection models are important to establish that the results are

not affected by selection bias from the conflict-onset stage (Heckman 1976).

A one-year lag between the dependent and independent variables ensures that causal factors

are measured temporally prior to outcomes. Independent variables include the key causal variable,

Trade Volume between the dyad in year t-1, and a number of control variables for factors that may

be related to both conflict escalation and trade volume.

Trade Volume is the sum of imports and exports for country A in the dyad from/to country

B. This is transformed into constant dollars using the U.S. Bureau of Labor Statistics deflator, with

1983 as the base year. I use two indicators for Interdependence, an important control variable

(Models 4-5, 7-8). Trade Share is Trade Volume divided by the total trade with all partners of the

state with the most total trade (representing the least dependent state). GDP Share is Trade Volume

divided by the GDP of the larger state in the dyad (again representing the state least dependent on

the other). Higher values thus indicate higher levels of mutual dependence.

                                                            9 Only the second stage (conflict escalation) of the selection models is shown to save space. I

provide full results in the online appendix.

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Several further control variables might be related to both trade volume and conflict

escalation.10 I include an indicator of Parity which approaches 1 when both states have the same

levels of military capabilities, as measured by the COW composite index of national capabilities

(CINC), and 0 when there is an imbalance of dyadic power. The sum of both states’ capabilities,

Power, is an important control because trade volume might be closely related to the economic size

of each state, as might military capabilities. Security relations with regional and global powers

might also be related to the chance of escalation, as well as to levels of trade. I therefore include the

ratio of U.S. military aid to capabilities for each state, as well as indicators of the similarity of

regional alliance portfolios of each, and the difference between their alliance ties with the U.S.

Alliance measures are based on Signorino and Ritter (1999).11

Table 3 about here.

Results of the analysis are presented in Table 3 and Figures 4 and 5. The central finding is

that dyadic trade volume is significantly associated with a reduction in the likelihood of escalation

in five of the six models. My fourth conjecture finds considerable support. In addition, even the

apparently insignificant positive coefficient in Model 5 (conditional model controlling for GDP

Share interdependence) does not actually indicate that there is no significant relationship. Effects in

probit models are best evaluated while holding other variables constant at meaningful values.

                                                            10 Indicators of regime type proved insignificant in the escalation models and so were dropped.

11 Data sources are as follows. Power, Parity, Regional Alliance Similarity, Difference in Alliance

Similarity with the U.S.: Bennett and Stam (2000). The ratio of U.S. military aid to military

capabilities for each state: U.S. “Greenbook” (United States 2012) and CINC from Bennett & Stam

(2002). Variables are transformed with the natural logarithm (when indicated) after adding a very

small number to avoid zero values.

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The marginal effects in Figures 3 and 4 therefore further strengthen this result, and give a

sense of its substantive importance. These use simulations (King, Tomz, and Wittenburg 2000,

Brambor, Clark, and Golder 2010) based on 10000 iterations, with other variables set at their

median values, to estimate the substantive impact of Trade Volume on the probability of

escalation.12 The coefficients in probit models are better interpreted by such simulations, since their

effects depend on the values taken by other variables in the model. Figures 3 and 4 are strikingly

similar, even though Trade Share is controlled for Figure 3 while GDP Share is controlled for

Figure 4. They suggest that movement from the lowest bound of trade volume to the highest values

can decrease the chance of escalation by about 15-20 percentage points. I also include markers

(vertical lines) for the median values of dyadic trade volume in East Asia in each period of interest:

1949-1978 and 1979-2000. These suggest the substantive significance of the actual change that took

place from the earlier to the later period of about a 10 percentage point decrease in the likelihood of

MID escalation. I contend that this is very likely to be an important part of the explanation for the

relative peace in East Asia since 1979.

Figures 3 and 4 about here.

The results are robust whether the GDP Share or Trade Share measure of interdependence is

used, and when selection bias is accounted for (Models 6-8). The insignificant rho statistics suggest

that selection effects do not bias the estimates for the second stage of the model. It is important to

note that there is no instance of a negative coefficient for either of the interdependence indicators.

The positive effect is significant in Model 7, but the selection models are not the preferred

                                                            12 Trade Volume is allowed to vary from the minimum to maximum value it takes when the Trade

Share interdependence variable is at its median (within the 95% confidence interval of the median

as estimated with Stata statistical software). This is done because trade volume is of course related

to interdependence, so the two cannot vary completely independently (see Goldsmith 2013b).

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specification when selection bias is not indicated. With no indication of any negative (i.e., pacific)

effect of interdependence on MID escalation, therefore, I consider the models excluding it from this

stage of analysis are preferable. These are Models 3 and 6, and each shows a highly significant

relationship between trade volume and a lower likelihood of MID escalation.

Conclusions

This article provides a theoretical argument linking the diffusion of liberal economic practices in

East Asia to positive security externalities. This second-order diffusion effect coincides with the

“East Asian peace” that some authors have noted, beginning after 1979. I theorize that the

catalysing event for the diffusion process was the PRC’s change of political-economic approach

begun in 1978. In Solingen’s terms, the agents are economic and foreign policy decision makers in

states, as well as firms concerned with trade and the effect of conflict on trade; the main

mechanisms are competition for the first-order diffusion of trade, and the signalling utility of trade

volumes for the second-order diffusion of peace; and the outcome is a lower frequency of the

escalation of international conflict in East Asia.

While others have addressed this relative East Asian peace, my article makes distinct

contributions to understanding its roots. In particular, I present novel theory and evidence in support

of specific causal mechanisms. However, other approaches do not necessarily compete with mine in

the sense that they are not mutually exclusive. Rather, normative (e.g., Kivimaki 2001) or domestic-

coalition (Solingen 2007) based explanations might present other valid partial explanations, or they

might reflect other empirical manifestations of the diffusion of liberalization and its second-order

impact on conflict. But assessing the relative weight or causal independence of competing and

complementary explanations must await further analysis.

I have presented evidence of the post-1978 dramatic increase in intra-regional trade flows,

the key variable I identify as driving the expected pacific dynamics at the escalation stage of

conflict, and analysis supporting my contention that this resulted from a first-order diffusion process

17  

stimulated by China’s policy change. My second-order diffusion argument then provides an

explanation for the East Asian peace with a specific causal mechanism, which at the same time uses

general variables rather than relying on region-specific or ad-hoc factors. My four conjectures find

considerable support, and the implications for international politics are clearly in line with

arguments for the positive security externalities of economic globalization. While neither trade

volumes nor any other factor can guarantee interstate peace, my analysis provides evidence that the

high and still increasing intra-regional trade volumes in East Asia do help make a potentially

dangerous region safer.

18  

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Table 1.

Intra-Regional Dyads with MID Onsets: Escalation and Trade

East Asian Dyads

Other Intra-Regional Dyads

n mean n mean

1949-1978 MID onset frequency 2814 0.038 38682 0.009MID Escalation 79 0.101 278 0.047Trade Share Interdependence 79 0.014 278 0.014GDP Share Interdependence 77 0.003 270 0.002Trade Volume 79 734 278 1129

1979-2001 MID onset frequency 2525 0.035 63285 0.007MID Escalation 80 0.025 378 0.040Trade Share Interdependence 80 0.014 374 0.011GDP Share Interdependence 80 0.004 374 0.002Trade Volume 80 4194 374 1579

Notes: Trade Volume expressed in inflation-adjusted US$ (millions) with 1983 as the base year. GDP Share Interdependence is the lower dependence score in each dyad year. Data for MID onset frequency represent entire dataset; other statistics are for all dyads with MID onsets. MID onsets and escalations measured at t+1 as in statistical models.

22  

Table 2.

Correlates of non-PRC Dyadic Trade Volume in East Asia, 1948-2000

Model 1 Model 2 s.e. p s.e. p

ln(Trade Volume StatesAB)t-1 0.86 0.02 0.00 0.86 0.02 0.00

ln(PRC Total Exports)t-1 0.40 0.18 0.02

ln(PRC Total Exports)t-2 -0.10 0.25 0.69

ln(PRC Total Exports)t-3 -0.30 0.18 0.10

ln(1-year Change in PRC Total Exports)t-1 -0.04 0.04 0.37

ln(2-year Change in PRC Total Exports)t-1 -0.04 0.07 0.56

ln(3-year Change in PRC Total Exports)t-1 0.08 0.05 0.09 ln(GDP_StateA) 0.27 0.04 0.00 0.29 0.06 0.00 ln(GDP_StateB) 0.31 0.04 0.00 0.34 0.06 0.00 ln(Distance) -0.09 0.07 0.17 -0.07 0.10 0.50 Regime Type A 0.01 0.01 0.48 0.00 0.01 0.78 Regime Type B 0.01 0.01 0.12 0.03 0.01 0.02 Constant -9.81 1.43 0.00 -10.62 2.01 0.00 N 4036 2264

R2 0.87 0.88

Wald chi2 18267.5 0.00 10224.4 0.00      Notes: Time-Series Cross-Sectional Linear Regression with panel-corrected standard errors (Beck and Katz 1995); Excludes dyads with PRC; "" indicates coefficient and "p" indicates p-value; standard errors in small italics.

23  

Table 3.

Escalation Models: East Asian Dyads with Conflict Onsets, 1949-2001

Model 3 Model 4 Model 5 Model 6 Model 7 Model 8 MID>250 MID>250 MID>250 MID>250 MID>250 MID>250

Trade Share GDP Share (selection) Trade Share (selection)

GDP Share (selection)

p p p p p p                                       

ln(Trade Volume) -0.07 0.01 -0.31 0.07 -0.18 0.32 -0.06 0.05 -0.42 0.00 -0.29 0.09 0.03 0.17 0.19 0.03 0.14 0.17

ln(Interdependence) 0.31 0.15 0.17 0.55 0.48 0.01 0.34 0.15

0.22 0.28 0.19 0.24

Parity -2.73 0.02 -1.95 0.12 -3.05 0.00

1.19 1.27 1.01

ln(Power) -0.76 0.00 -0.44 0.03 -0.66 0.00 -0.42 0.02 -0.05 0.76 -0.22 0.25

0.20 0.20 0.13 0.18 0.16 0.19

ln(USMilAidRatioA) -0.04 0.01 -0.03 0.03 -0.03 0.00 -0.03 0.02 -0.02 0.05 -0.02 0.07

0.02 0.01 0.01 0.01 0.01 0.01

ln(USMilAidRatioB) -0.01 0.29 -0.02 0.21 -0.01 0.60 -0.02 0.09 -0.02 0.13 -0.01 0.35

0.01 0.01 0.01 0.01 0.01 0.01

Regional Alliance Similarity -1.81 0.12 -1.78 0.11 -2.74 0.01 0.26 0.65 0.17 0.77 -0.40 0.56

1.17 1.13 1.11 0.56 0.58 0.67

Difference in Alliance Similarity w US -2.92 0.18 -2.78 0.14 -3.30 0.10

2.15 1.88 2.01

Constant -1.78 0.20 2.01 0.40 0.99 0.75 -3.01 0.00 2.57 0.24 1.28 0.67

1.40 2.39 3.05 0.54 2.19 3.03

N 159 159 157 136 (stage 2) 134 (stage 2) 105 (stage 2)

rho -0.09 0.70 -0.01 0.97 0.10 0.69

Wald chi2 51.53 0.00 84.15 0.00 129.45 0.00 10.37 0.07 -0.09 0.70 12.21 0.06

24  

Notes: Data for East Asian dyads with MID onsets; Models 3-5 are probit models with standard errors corrected for clustering on dyads; Models 6-8 are heckman selection models, also with standard errrors corrected for clustering. Only stage 2 of the selection models is shown (full results in online appendix). "" indicates coefficient and "p" indicates p-value; standard errors in small italics; dependent variable (escalation to MID with over 250 battle deaths) measured at year t+1, independent variables at year t.

25  

Figure 1. Trade Volume and Interdependence in East Asia

 

0.5

11.

5

01

23

4

1950 1960 1970 1980 1990 2000Year of observation

Trade Volume ($ bil) Trade Volume ($ bil; COW)%GDP Share Interdep %Trade Share Interdep (COW)

East Asia

26  

Figure 2. Conflict Onset and Escalation in East Asia

0.0

2.0

4.0

6.0

8.1

1950 1960 1970 1980 1990 2000Year of observation

MID Onsets MIDs with >250 deaths

East Asia

27  

Figure 3.

1949

-197

8 M

edia

n

1979

-200

0 M

edia

n

0.2

5.5

.75

1P

roba

bilit

y (9

5% C

I)

-1.147 1.169 3.571 5.671

ln(Trade Volume)

East Asian Dyads w/MIDs (Controlling for Trade-Share Interdependence)

Model 4: Probability of Escalation to MID>250 deaths as Trade Volume Increases

28  

Figure 4.

1949

-197

8 M

edia

n

1979

-200

0 M

edia

n

0.2

5.5

.75

1P

roba

bilit

y (9

5% C

I)

-.077 1.169 3.571 5.699

ln(Trade Volume)

East Asian Dyads w/MIDs (Controlling for GDP-Share Interdependence)

Model 5: Probability of Escalation to MID>250 deaths as Trade Volume Increases