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The Role of Investment in the Equilibrium of International Political Economy: Game Theory Approach

Author

Listed:
  • Salah Salimian
  • Mahdi Movahedi Beknazar
  • Zahra Khalilzadeh Silabi

Abstract

Purpose: The researchers in the international arena, especially in the ‘liberal tradition’, emphasize on the effect of international economic cooperation such as trade and investment in the expansion of peace and prevention of war. Based on this, the present study has tried to utilize "Game theory" to give a different answer to this main question of, how economic cooperation in the form of international investment could prevent peace or promote peace in addition to maximizing the profit of the investors. Design/Methodology/Approach: In this paper, using game theory and presenting a static game between players, the game modeling between investors and countries has been done. Findings: The results indicated that risks and output inside and outside the country is a direct function of external risk and economic power, of course, this relationship is reversed for the investor. Finally, if the hostility degree (ρ) between countries is zero, then the countries will achieve a maximum positive outcome which will increase with the decrease of economic power. Practical Implications: The results confirm that economic cooperation, while reducing conflicts between countries, can also prevent military conflicts and strengthen peace. In addition, convergence and economic interdependence not only reduce the likelihood of war, but also increase the welfare of the parties involved, and this result is a significant reason to strengthen the avoidance of war. Originality/Value: Investors and countries are recommended to use the results of this study and pave the way for world peace by creating international markets.

Suggested Citation

  • Salah Salimian & Mahdi Movahedi Beknazar & Zahra Khalilzadeh Silabi, 2023. "The Role of Investment in the Equilibrium of International Political Economy: Game Theory Approach," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 13(3), pages 131-145.
    • Handle: RePEc:ers:ijfirm:v:13:y:2023:i:3:p:131-145
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    References listed on IDEAS

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    1. Robert Gibbons, 1997. "An Introduction to Applicable Game Theory," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 127-149, Winter.
    2. Philippe EGGER, 2005. "The economics of peace: Trends and prospects of the Palestinian economy and labour market," International Labour Review, International Labour Organization, vol. 144(1), pages 31-54, March.
    3. Kimbrough, Erik O. & Laughren, Kevin & Sheremeta, Roman, 2020. "War and conflict in economics: Theories, applications, and recent trends," Journal of Economic Behavior & Organization, Elsevier, vol. 178(C), pages 998-1013.
    4. Yared, Pierre, 2010. "A dynamic theory of war and peace," Journal of Economic Theory, Elsevier, vol. 145(5), pages 1921-1950, September.
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    More about this item

    Keywords

    Peace; Game theory; Static games of complete information; Nash Equilibrium.;
    All these keywords.

    JEL classification:

    • D50 - Microeconomics - - General Equilibrium and Disequilibrium - - - General
    • C71 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Cooperative Games
    • C70 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - General
    • F52 - International Economics - - International Relations, National Security, and International Political Economy - - - National Security; Economic Nationalism

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