There is a simple and compelling logic to the thesis that economic interdependence decreases the risk of military conflict between nations. As an unconditional proposition, however, this does not seem to be the case. Countries that are economically integrated do sometimes wage war against each other. Yet, most articulations of the commercial peace theory base the causal mechanism on the economic costs of conflict on the aggregate national welfare. This is particularly problematic if one believes, as most international relations scholars do, that foreign policies are an elite-driven process rather than based on popular opinion.

My dissertation addresses the need for a clear and testable causal mechanism by which commercial exchanges have a pacific effect on bilateral relations. In order to do so, it focuses on those who gain the most from interstate economic exchanges. I argue that business must have an influential effect on the formulation of policy for economic interdependence to reduce interstate militarized disputes. Moreover, this condition must exist on both sides of a dyadic relationship in order to build the necessary trust that their shared economic prosperity will be prioritized when conflicts do occur. This argument is encapsulated in a two-level theory of the commercial peace that incorporates domestic politics into the interstate bargaining process.

I test this theory through a mixed method approach — (1) quantitatively examining the interaction of private sector size and bilateral trade on the likelihood of violent militarized disputes, and (2) two qualitative case studies tracing the process by which business exerts influence on security policy-making for the rival dyads of Colombia-Venezuela and China-Japan. The results establish the importance of economic elites in formulating foreign policy in conditioning the success of economic interdependence to reduce militarized conflicts.