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Economic Interdependence and Peaceful Power Transition
Unformatted Document Text:  6 Robst, and Chang 1999). Economic interdependence provides states with means to resolve disputes without resorting to military violence. The earlier “Manchester School of Liberalism” in economic policy proposes laissez-faire, free trade, government withdrawal from the economy, and an optimistic stress on the "harmonious" effects of free enterprise capitalism. Without the interference of government, trade disputes can be settled through negotiation instead of high level conflict. In discussing the relations between power and interdependence, Keohane and Nye (1989) introduced a liberal concept of “complex interdependence” which has a main characteristic: military force is largely irrelevant. This point of view suggests that deep interdependence between states reduces the likelihood of war. Countries whose economic and political interests are deeply entangled with one another’s are less likely to use military force to solve their disputes. The causal relationship between economic interdependence and conflict/cooperation in power transition can be demonstrated in a game. Challenger A and dominant state B are players in the game. A is maximizing its interest and finds itself constrained by the existing system constructed by B. The difficulty for A is how to minimize its own cost when challenging the status quo. B, the system creator, wants to maintain the status quo to enjoy the optimized benefits it gets. First, A makes a demand to change the system structure by threatening to cut economic ties with B. If B accepts A’s demand, then the game ends up with a peaceful transition. If B rejects, A will face two options: withdraw the demand, or take actions. The withdraw option might bring A audience cost both domestically and internationally and ends the game. By taking actions of exit the bilateral economic interactions, B can give up its leadership to end the game, or meet the challenge from A and the game ends up in a conflictual power transition. The calculation

Authors: Zhou, Xinwu.
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6
Robst, and Chang 1999). Economic interdependence provides states with means to
resolve disputes without resorting to military violence. The earlier “Manchester School of
Liberalism” in economic policy proposes laissez-faire, free trade, government withdrawal
from the economy, and an optimistic stress on the "harmonious" effects of free enterprise
capitalism. Without the interference of government, trade disputes can be settled through
negotiation instead of high level conflict. In discussing the relations between power and
interdependence, Keohane and Nye (1989) introduced a liberal concept of “complex
interdependence” which has a main characteristic: military force is largely irrelevant.
This point of view suggests that deep interdependence between states reduces the
likelihood of war. Countries whose economic and political interests are deeply entangled
with one another’s are less likely to use military force to solve their disputes.
The causal relationship between economic interdependence and conflict/cooperation
in power transition can be demonstrated in a game. Challenger A and dominant state B
are players in the game. A is maximizing its interest and finds itself constrained by the
existing system constructed by B. The difficulty for A is how to minimize its own cost
when challenging the status quo. B, the system creator, wants to maintain the status quo
to enjoy the optimized benefits it gets. First, A makes a demand to change the system
structure by threatening to cut economic ties with B. If B accepts A’s demand, then the
game ends up with a peaceful transition. If B rejects, A will face two options: withdraw
the demand, or take actions. The withdraw option might bring A audience cost both
domestically and internationally and ends the game. By taking actions of exit the bilateral
economic interactions, B can give up its leadership to end the game, or meet the
challenge from A and the game ends up in a conflictual power transition. The calculation


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