The effect of foreign policy strategies on the economic dependence of a buffer state.

Abstract

Due to the Ukraine-Russia conflict, the US-China trade war, and the COVID crisis there is increased awareness for the (economic) dependence of countries. This study attempts to identify the direction and size of the relationship between the foreign policy strategy and the economic dependency factor of a buffer state. With a case study on six buffer states, this study answers the following question: how does a foreign policy strategy affect the economic dependence of a buffer state? The research question is divided into two parts. First, it is established whether the economic dependency of foreign policies differ via the KruskalWallis test and the Dunn test. The second part elaborates on the contrasts per foreign policy. These differences are analysed by a regression and a yearly relative change in economic dependency. Three conclusions are drawn: the foreign policy strategies differ significantly from each other, there is a positive relationship between the predilection & third-power strategy and the economic dependency factor, and the volatility of economic dependency is the largest in the third-power strategy and the smallest in the multivector approach. The positive relationships show that an implementation of those policies increase the economic dependence of the buffer state. A higher volatility of this economic dependence can result in a higher volatility of tax revenue, an unstable domestic economy, and inefficient interest rates. Policy makers of buffer states but also foreign companies, investors, or immigrants looking to join the buffer state must incorporate the implications of the chosen foreign policy into their personal consideration. Further research should be conducted on this relationship to simplify this consideration for the involved parties