Trade-Based Solutions for Revitalizing Post-Conflict Economies

Abstract

International trade improves efficiency in home markets, creates new sources of demand for domestic industries, and boosts worker productivity. However, some types of trade are better than others for reviving the economies of countries emerging from internal or international armed conflicts. This note evaluates existing trade mechanisms that ostensibly help developing countries but fail to actually do so. It ultimately recommends the use of investor-state partnerships over trade-based mechanisms as the appropriate tool for improving the economies of post-conflict states. Part I evaluates a number of these existing trade mechanisms, including preferential trade agreements and the General System of Preferences. Part II raises two problems unique to post-conflict countries that must be factored into any analysis of how to best help their economies: aid dependency and resource dependency. Part III undertakes several historical comparisons to examine the effects of these measures in practice. It offers a set of brief case studies into postwar reconstruction efforts in Germany and Japan after World War II and Iraq after the First Gulf War. Finally, Part IV distills the lessons learned from these inquiries and presents “build-operate-transfer” schemes as the “ideal” way to boost tradable goods sectors in post-conflict countries and ensure that funds used to do so are directed to their purposes effectively and efficiently.