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.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
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-AFR-2005-09-17 (Africa)
- 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.:
- King, Gary & Lowe, Will, 2003. "An Automated Information Extraction Tool for International Conflict Data with Performance as Good as Human Coders: A Rare Events Evaluation Design," International Organization, Cambridge University Press, vol. 57(03), pages 617-642, June.
- Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998.
"How does foreign direct investment affect economic growth?1,"
Journal of International Economics,
Elsevier, vol. 45(1), pages 115-135, June.
- Eduardo Borensztein & Jose De Gregorio & Jong-Wha Lee, 1995. "How Does Foreign Direct Investment Affect Economic Growth?," NBER Working Papers 5057, National Bureau of Economic Research, Inc.
- J Paul Dunne & Sam Perlo-Freeman & Ron P Smith, 2008.
"Determining Military Expenditures: Arms Races and Spill-Over Effects in Cross-Section and Panel Data,"
0801, British University in Egypt, Faulty of Business Administration, Economics and Political Science.
- J Paul Dunne & Sam Perlo-Freeman & Ron P Smith, 2009. "Determining Military Expenditures: Arms Races and Spill-Over Effects in Cross-Section and Panel Data," Working Papers 0901, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
- J. Paul Dunne & Sam Perlo-Freeman & Ron Smith, 2008.
"The Demand For Military Expenditure In Developing Countries: Hostility Versus Capability,"
Defence and Peace Economics,
Taylor & Francis Journals, vol. 19(4), pages 293-302.
- J Paul Dunne & Samuel Perlo-Freeman & Ron P Smith, 2007. "The Demand for Military Expenditure in Developing Countries: Hostility versus Capability," Working Papers 0707, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jason Barr).
If references are entirely missing, you can add them using this form.