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Discussion Paper 2010-01
JEL Classi fication: D74, F02, F11, H56, H77

Abstract

We construct a trade-theoretic model of two open economies which are in conflict with each other. War e fforts - which involve the use of soldiers and military hardware - are determined endogenously. The purpose of war is the capture of land containing a natural resource like diamond, but the costs are that lives are lost and production sacri ficed. The capture of mining land helps to reinforce the war by using profi ts from the sale of the natural resource to purchase arms. We examine the e ffect of a number of policy instruments available to the international community (such as foreign aid, a tax on arms exports and on the export of the natural resource from the war areas) on war eff orts. We identify the role of the 'protective' nature of arms, and of income eff ects of the policy instruments, on the results.

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