In a recent paper (Lee and Pyun 2008), we assess the impact of trade integration on military conflict based on a large panel data set of 290,040 country-pair observations from 1950 to 2000. Results show that an increase in bilateral trade interdependence reduces the probability of inter-state military conflict between the two partners. If bilateral trade volume increases 10% from the world mean value, the probability of military conflict between the two trading partners decreases by about 0.1% from its predicted mean probability, other variables remaining constant. The peace-promotion effect of bilateral trade integration is significantly higher for contiguous countries that are likely to experience more conflicts. For example, an increase of 10% in bilateral trade volume lowers the probability of military conflict between two contiguous states by about 1.9%.

More importantly, our study finds that global trade openness also significantly promotes peace. An increase in global trade openness would reduce the probability of military conflict as it leads to an increase in bilateral trade interdependence. ... [O]ur study finds that multilateral trade openness in fact lowers the probability of dyadic conflict with the bilateral trade partner, and by a larger magnitude than bilateral trade does alone. An increase in global trade openness by 10% from the world mean value decreases the probability of the dyad's military conflict by about 2.6% from its predicted mean.

... [G]lobalisation promotes peace through two channels: one from the increased advantage peace holds for bilateral trade interdependence and the other from a country’s integration into the global market, regardless of the size of trade with each trading partner. "Globalisation" has been one of the most salient features of the world economy over the past century. Emerging markets and developing countries continue to integrate into the global trading system. World trade has increased rapidly, particularly since World War II — from 18% of world GDP in 1950 to 52% in 2007. At the same time, the number of countries involved in world trade has also increased significantly. However, despite the increase in the number of country pairs between which conflict is possible, the probability of dyadic military conflicts has decreased.

Our findings suggest that trade integration not only results in economic gain but can bring about significant political gain as well — such as a significant “peace dividend” between trading partners. It also explains why regional or global economic integration is often initiated to satisfy political and security motives. For example, the raison d’etre behind the formation of the EU following World War II was the desire for peace — particularly between France and Germany.