Globalization and International Conflict: Can FDI Increase Peace?
AbstractThis paper extends the analysis of the conflict-trade relationship by introducing foreign direct investment (FDI). We present a formal model that shows why FDI can improve international relations. We then proceed to test the model empirically. Our empirical results in fact show that foreign direct investment plays a similar role to trade in affecting international interactions. More specifically, we find that the flow of FDI has reduced the degree of international conflict and encouraged cooperation between dyads during the period of the late 1980 and the decade of the 90s. This is an especially important finding since one of the main characteristics of globalization has been the reduction of barriers to international capital flows. As a consequence, these have expanded enormously relative to trade flows. Finally, we also find that trade and FDI complement each other in reducing conflict. The policy implication of our finding is that further international cooperation in reducing barriers to both trade and capital flows can promote a more peaceful world.
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Bibliographic InfoPaper provided by Department of Economics, Rutgers University, Newark in its series Working Papers Rutgers University, Newark with number 2005-004.
Length: 35 pages
Date of creation: Sep 2005
Date of revision:
Foreign Direct Investment; Conflict; Trade;
Find related papers by JEL classification:
- H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
This paper has been announced in the following NEP Reports:
- NEP-ALL-2005-09-17 (All new papers)
- NEP-IFN-2005-09-17 (International Finance)
- NEP-PBE-2005-09-17 (Public Economics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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