523 Introduction Classical liberals such as Immanuel Kant argued that expanding political participation and increasing economic interdependence would promote peace among states. The first pillar of this claim has been strongly sup- ported by the burgeoning ‘democratic peace’ literature. While the results strongly support the joint democracy (or dyadic) version of the democratic peace, some findings have also demonstrated that democracies may be more pacific regardless of the nature of their opponent. 1 More recently, focus has shifted to the long-neglected second pillar of the liberal peace: economic interdependence. Do trade and investment between two states suppress the emergence of conflict and dampen the escalation of conflict? Empirical © 2005 Journal of Peace Research, vol. 42, no. 5, 2005, pp. 523–543 Sage Publications (London, Thousand Oaks, CA and New Delhi) http://jpr.sagepub.com DOI 10.1177/0022343305056225 The Classical Liberals Were Half Right (or Half Wrong): New Tests of the ‘Liberal Peace’, 1960–88* HYUNG MIN KIM Department of Political Science, University of North Carolina at Chapel Hill DAVID L. ROUSSEAU Department of Political Science, University at Albany (SUNY) Classical liberals such as Kant argued that expanding political participation and increasing economic interdependence would promote peace among states. Recent empirical support for both propositions has led to a growing consensus on the power of the ‘liberal peace’. This article challenges one pillar of the liberal peace. Using a dataset of international disputes from 1960 to 1988, the authors find that there is no statistical evidence of the pacifying effect of economic interdependence. Findings in the existing literature appear to be due to the improper use of the classic logit (or probit) method despite the existence of the ‘simultaneity problem’ between the use of force and interdependence (i.e. recipro- cal causation). In this study, the authors employ a two-stage probit least squares method to control this problem. Although Kant’s prediction with respect to regime type is supported by the analysis, the claim that economic interdependence will decrease conflict is not. The two-stage results reveal that inter- national conflict reduces economic interdependence (rather than interdependence reducing conflict). The findings are robust using five alternative operationalizations of the economic interdependence vari- able. Finally, a re-analysis of the Russett & Oneal dataset using a two-stage probit model also indicates that the impact of economic interdependence evaporates after correcting for the simultaneity problem. * Equal authorship implied. We thank Timothy McKeown, Mark Crescenzi, Marco Steenbergen, Edward Mansfield, Patrick McDonald, and several anonymous referees for their comments and suggestions. Datasets, command files, and sensitivity analysis can be found at http://www. prio.no/jpr/datasets and correspondence can be directed to hmkim@email.unc.edu and rousseau@sas.upenn.edu. Statistical analysis is conducted using Stata version 8. 1 Recent works include Huth & Allee (2002), Bennett & Stam (2004), and Rousseau (2005).