Peace Dividends in a Trade-Theoretic Model of Conflict

11 Pages Posted: 19 Jul 2011

See all articles by Sajal Lahiri

Sajal Lahiri

Southern Illinois University Carbondale - Department of Economics

Valerica Vlad

Pennsylvania State University

Date Written: July 18, 2011

Abstract

We construct a trade-theoretic model for three open economies two of which are in conflict with each other and the third is the source of foreign investments to the two warring countries. War efforts -- which involve the use of soldiers -- is determined endogenously. The purpose of war is the capture of land, but the costs are production sacrificed, reduced flow of foreign investments, and general disruptions in the economy. We examine the effect of a bilateral piecemeal reduction in war efforts on the level of foreign investments and on welfare in the three countries. We find positive effects on all fronts.

Keywords: War, peace dividend, foreign investment

JEL Classification: F02, F11, H56, H77

Suggested Citation

Lahiri, Sajal and Vlad, Valerica, Peace Dividends in a Trade-Theoretic Model of Conflict (July 18, 2011). Available at SSRN: https://ssrn.com/abstract=1888405 or http://dx.doi.org/10.2139/ssrn.1888405

Sajal Lahiri (Contact Author)

Southern Illinois University Carbondale - Department of Economics ( email )

MC 415
1000 Faner Drive
Carbondale, IL 62901
United States

Valerica Vlad

Pennsylvania State University ( email )

286 Burke
Erie, PA 16563
United States

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