Many people believe that the United States intervenes militarily in foreign countries to promote the economic interests of private U.S. corporations. Studies allege that the United States helped overthrow governments in Guatemala (1954) and Chile (1973) to protect the interests of U.S. firms, for instance. Other studies maintain that the U.S. government enacted regime change in Iran (1953) and Iraq (2003) to benefit U.S. oil companies.
Proponents of the economic rationale for U.S. military intervention point to the close ties between corporate leaders and U.S. government officials. Representatives of Pepsi, ITT and Anaconda Copper, for example, all sought to persuade the Nixon administration to prevent Salvador Allende from coming to power in Chile.
Less often noted, however, is that the purported beneficiaries of these U.S. interventions don’t gain much. United Fruit Co., the supposed instigator of President Jacobo Árbenz’s 1954 overthrow in Guatemala, was forced by a U.S. antitrust lawsuit to give up its Guatemalan land holdings. Similarly, Anaconda never got its Chuquicamata copper mine in Chile back after the fall of Allende in 1973, a blow from which the company never recovered.
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Finally, looking at Iraq today, U.S. companies hardly dominate oil production, two-thirds of which is exported to Asia. Iraq has become China’s second-largest source of oil.
We question the economic payoff from intervention
In fact, we argue that military intervention (in the form of a foreign-imposed regime change, or FIRC) rarely yields significant economic benefits. Here’s why: Instability from the intervention causes trade between the imposing and target countries to decline.
In our recent article “No Business Like FIRC Business: Foreign-Imposed Regime Change and Bilateral Trade” in the British Journal of Political Science, we explore whether regime change results in increased trade between intervening and target states. The answer is a resounding no.
Proponents of the economic hypothesis argue that intervening states impose sympathetic leaders who implement policies that benefit their foreign patron. These policies include opening the state’s markets to the intervener’s firms, preferentially lowering tariffs or treating these firms more favorably.
A more subtle argument is that ongoing CIA operations give the United States increased influence in target states whether or not they entail regime change — and this leverage helps persuade targets to accept more U.S. imports.
Other researchers disagree, maintaining that concerns for security, regional influence and credibility tend to drive foreign interventions. If governments are motivated by other factors when they intervene, we might expect them to prioritize these factors, implying that intervention should have no effect on trade.
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Why does regime change hurt trade?
A number of studies suggest that regime change increases the likelihood of civil war and violent leader removal. Indeed, the aftermath of U.S. FIRCs in Latin America is littered with overthrown leaders and destructive civil wars.
We posit that the violence that follows regime change in the target state decreases bilateral trade through three mechanisms. First, instability makes the target less attractive as a destination for foreign investment, and may cause firms already operating there to withdraw.
Second, post-FIRC turmoil may suppress consumer demand in the country — domestic strife tends to lower GDP, other studies show. Finally, post-intervention instability decreases domestic firms’ productivity and competitiveness on the international market.
This argument fits well with the understanding of regime change that is emerging in current scholarly literature. Because interveners enact FIRC in pursuit of their own interests, they empower leaders who are sympathetic to those interests. Yet in most cases, domestic constituents do not favor carrying out policies preferred by the intervener government.
This creates a Catch-22. If the imposed leader adheres more to the preferences of his external patron, the people may seek to oust him; if he listens to the preferences of his people, his patron may try to remove him. Regime change can thus produce conflict, and the instability that follows many FIRCs damages intervener-target economic relations.
So what was the result in Latin America?
We looked closely at the effect of 14 U.S.-led FIRCs in Latin America, often considered archetypal cases of economic intervention. We examined how these regime changes affected the amount of trade between the target country and the United States, compared with countries that did not experience regime change. To conduct our analysis, we use a novel dataset of bilateral trade between the United States and Latin America from 1873 to the present collected through archival research at the Department of Commerce in Washington, D.C.
Our findings support our theory and contradict the economic and security explanations. Controlling for other factors that influence trade, we found that U.S. FIRCs significantly depressed total trade. Our analysis shows that, on average, regime change caused a 45 percent reduction in the dollar amount of bilateral trade — or a loss of $272 million in trade per year per targeted country (in 1996 dollars).
Additional archival evidence — although limited — supports our central finding. For example, market share data from Panama show that the U.S. share of Panamanian trade decreased after the 1989 overthrow of Manuel Antonio Noriega.
Similarly, analysis of U.S. banana import data from 1905 to 1946 reveals that regime change did not increase banana imports from target countries. And finally, the fates of United Fruit and Anaconda suggest that individual firms do not always benefit from FIRC supposedly undertaken on their behalf.
Don’t expect a big payoff from regime change
Although these findings are surprising, they dovetail nicely with the logic of regime change we sketched out above. Imposed leaders are hard to control, because they answer to two masters with different interests. This reality increases the likelihood of internal and external conflict. The resulting violence leads to less trade with the intervener.
We would caution against overgeneralizing our findings, which are based on the effect of one type of intervention by a single intervener — the United States — in one region. But our results suggest that the absence of a major economic windfall from the 2003 ouster of Saddam Hussein in Iraq is not an anomaly. Just as the political benefits of regime change are highly uncertain, so are the economic ones.
Paul Zachary is a visiting fellow at the Institute for Quantitative Theory and Methods at Emory University and a PhD candidate in political science at the University of California, San Diego. His research focuses on the behavioral effects of exposure to violence and crime.
Alexander B. Downes is an associate professor of political science and international affairs at The George Washington University, where he teaches international security. He is the author of “Targeting Civilians in War” (Cornell University Press, 2008), and is working on a book on the consequences of foreign-imposed regime change.