The relationship between foreign trade and political conflict has been a persistent source of controversy among scholars of international relations. Existing empirical studies of this topic have focused on the effects of trade flows on conflict, but they have largely ignored the institutional context in which trade is conducted. In this article we present some initial quantitative results pertaining to the influence on military disputes of preferential trading arrangements (PTAs), a broad class of commercial institutions that includes free trade areas, common markets, and customs unions. We argue that parties to the same PTA are less prone to disputes than other states and that hostilities between PTA members are less likely to occur as trade flows rise between them. Moreover, we maintain that heightened commerce is more likely to inhibit conflict between states that belong to the same preferential grouping than between states that do not. Our results accord with this argument. Based on an analysis of the period since World War II, we find that trade flows have relatively little effect on the likelihood of disputes between states that do not participate in the same PTA. Within PTAs, however, there is a strong, inverse relationship between commerce and conflict. Parties to such an arrangement are less likely to engage in hostilities than other states, and the likelihood of a military dispute dips markedly as trade increases between them.
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