Foreign direct investment and militarized international conflict
Liberals claim that countries avoid conflict in order not to disrupt economically beneficial exchange. The statement that economic integration reduces the likelihood of conflict is largely based on the effects of trade. A similar rationale can be applied to economic interdependence in the form of international capital exchange. A state is expected to avoid political risk, especially severe forms such as militarized disputes, in order not to deter investors. This study tests, on the dyadic and monadic levels of analyses, whether the liberal peace proposition holds when economic integration is operationalized as foreign direct investment (FDI) stocks, inflows, and outflows. The results for the years 1980-2000 indicate that inflows and stock of foreign investment reduce the risk of an outbreak of a fatal dispute, regardless of whether they are tested in a single equation or a simultaneous equation model. Thus, reverse causality does not bias the pacifying effect of foreign investment inflows and stock. The results also support the underlying notion of the commercial peace that militarized conflicts inhibit foreign investment. The onset of a fatal conflict reduces FDI inflows, and, if tested in a two-stage instrumental variable approach, FDI stock, the most complete measure of economic integration through foreign investment. Accounting for endogeneity seems particularly important when analyzing the link between the onset of fatal disputes and the outflow of FDI.
When requesting a correction, please mention this item's handle: RePEc:sae:joupea:v:47:y:2010:i:2:p:143-153. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (SAGE Publishing)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.