Abstract

Scholars have studied the link between economics and international peace for centuries. But the theoretical mechanisms are much debated, and causal evidence on these mechanisms is scarce. We specify one mechanism based on economic sanctions and test it in the context of a highly salient international conflict: the China-Japan territorial dispute over the Diaoyu/Senkaku Islands. We deploy a national survey in China to measure the political difficulty of deescalating a Sino-Japanese crisis over these islands. Then we devise experimental treatments to test whether economic sanctions can contribute to crisis deescalation and war avoidance. Results show that economic sanctions sharply reduced the domestic political costs of backing down in an international crisis. Our results provide rare causal evidence on how economic instruments may potentially promote peace in one of the most dangerous conflicts in contemporary international politics.