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Globalization and International Conflict: Can FDI Increase Peace?

Author

Listed:
  • Solomon Polachek

    ()

  • Carlos Seiglie

    ()

  • Jun Xiang

Abstract

This 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.

Suggested Citation

  • Solomon Polachek & Carlos Seiglie & Jun Xiang, 2005. "Globalization and International Conflict: Can FDI Increase Peace?," Working Papers Rutgers University, Newark 2005-004, Department of Economics, Rutgers University, Newark.
  • Handle: RePEc:run:wpaper:2005-004
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    File URL: http://andromeda.rutgers.edu/~econnwk/workingpapers/2005-004.pdf
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    References listed on IDEAS

    as
    1. Edward D. Mansfield & Brian M. Pollins, 2001. "The Study of Interdependence and Conflict," Journal of Conflict Resolution, Peace Science Society (International), pages 834-859.
    2. Borensztein, E. & De Gregorio, J. & Lee, J-W., 1998. "How does foreign direct investment affect economic growth?1," Journal of International Economics, Elsevier, pages 115-135.
    3. Solomon William Polachek, 1980. "Conflict and Trade," Journal of Conflict Resolution, Peace Science Society (International), pages 55-78.
    4. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Samuel Perlo-Freeman & Don J. Webber, 2009. "Basic Needs, Government Debt and Economic Growth," The World Economy, Wiley Blackwell, pages 965-994.
    2. 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, pages 293-302.
    3. repec:rss:jnljfe:v1i2p3 is not listed on IDEAS
    4. Webber, Don J. & Freke, Martin, 2006. "Church organists: Analysing their willingness to play," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 35(5), pages 854-867, October.
    5. Lin Scott Y. & Seiglie Carlos, 2014. "Same Evidences, Different Interpretations – A Comparison of the Conflict Index between the Interstate Dyadic Events Data and Militarized Interstate Disputes Data in Peace-Conflict Models," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 20(2), pages 1-26, April.
    6. 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," Discussion Papers 0801, British University in Egypt, Faulty of Business Administration, Economics and Political Science.

    More about this item

    Keywords

    Foreign Direct Investment; Conflict; Trade;

    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

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