Carlos Seiglie

The Impact Of Foreign Direct Investment On International Conflict

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 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 co‐operation between dyads during the period of the late 1980s and the decade of the 1990s. This is an especially important result since one of the main characteristics of globalization has been the reduction of barriers to international capital flows and, as a consequence, the amounts of capital flows have expanded enormously dwarfing those of trade flows. The policy implication of our finding is that further international co‐operation in reducing barriers to capital flows can promote a more peaceful world. † The authors would like to acknowledge the comments of participants at the ISA meetings in Montreal, those of the Peace Science Society in Houston and the Economics and Security Conference in Thessaloniki, Greece.

DETERMINANTS OF MILITARY EXPENDITURES

[Returning to a main theme of this book, Seiglie conducts research on the determinants of the level of military expenditures in a way which represents a major step forward. He tests a military expenditure function that explicitly treats both the supply and demand factors. Recall the statement made previously that the literature on peace economics comprises a helter-skelter of contributions. Thus we find Seiglie employing variables, for example to reflect political factors and level of trade, often different from those used by the previous contributors to this book. His contribution, however, lies in the comprehensive analysis involving a better balance of factors impinging on arms expenditure policy. (eds.)]

International Conflict and Military Expenditures An Externality Approach

This article analyzes the two-stage problem a country faces in first choosing the optimal amount of arms to acquire and then deciding whether it can improve upon the allocation that emerges after the first stage by engaging in a military conflict. A model is introduced based on the concept of economic externality to generate conflict situations in the first stage. Then comparative static results are derived by varying the parameters of this model, for example, the rate of technological progress in the military sector and the rate of economic growth, and examining whether the conflict situation improves or worsens as the social welfare of the nations change accordingly. Uncertainty is then introduced and the results are analyzed. Finally, the last part explores the conditions under which the conflict situations presented in the first stage actually lead to the outbreak of war.

Defense Spending in a Neo-Ricardian World

This paper shows that Ricardian equivalence no longer holds once it is recognized that government acts as an intermediary between generations in the provision of national defense. Consequently, the level of public debt is positively related to defense spending since this component of government expenditures insures the transferability of bequests, as well as protecting savings. It is shown that defense spending has an adverse effect on both national saving and the saving rate that has not been considered in the economic growth literature. More generally, the paper emphasizes that, in developing a positive theory of taxation, the composition of government spending plays an integral role. Copyright 1998 by The London School of Economics and Political Science

Economic intelligence and national security

“We must have information superiority: the capability to collect process and disseminate an uninterrupted flow of information while exploiting or denying an adversarys ability to do the same” (DoD, Joint Vision 2010). Since the end of the 1980s, the world economy has evolved, and there has been a rapid movement towards globalization. The end of the Cold War coincided with the end of “traditional” conflicts and a new dominant paradigm appeared. The terms of economic war and international competitiveness became inescapable issues dealt at the same moment by economists and the whole politico-administrative sphere. However, as Krugman (1996) noted this vision can turn out dangerous if it leans on erroneous diagnoses. Economic intelligence appears in this particular context. From a theoretical point of view, economic intelligence is presented in Michael Porters works, for example in his article with V. E. Millar, “How information gives you competitive advantage”. Empirically, economic intelligence is not a new phenomenon. For example, it was practiced in the Middle Ages, when the Venetians passed information onto the Palace of the Doges through their ports and Mediterranean fleet during competition between the commercial cities of the North of Italy and Flanders.

Determining Values Using Options Contracts

Abstract This paper presents a simple mechanism for allocating a single good in partnership dissolution. Since in the areas of probate, family, partnership and bankruptcy law the establishment of the value of assets is essential this mechanism can be useful. We illustrate its application for the case of determining the value of a house in a divorce proceeding. We show that when transactions costs are permitted, our mechanism shows a wider range of equilibrium outcomes than existing mechanisms such as Texas shootouts, implying it offers more equal and fair divisions. In addition, if private valuations of an asset are allowed, the proposed mechanism has an advantage based on the efficiency criterion compared to Texas shootouts.

Defence Expenditures: Theory and Empirics

Abstract There has been an extensive amount of research on the determinants of military spending over the last 25 years. These studies underline that military spending is a complicated concept, with economic capabilities, political processes and military linkages playing an interdependent role at the national, regional and global levels. Recent works focus on other outcomes of military spending. This chapter develops a model of conflict that generates a demand for military personnel and equipment by countries for either aggressive or defensive purposes. This model highlights some of the key determinants of military spending. Using pooled time-series, cross-sectional data on military spending for 146 countries from 1998 to 2007 we test this model and analyze other possible factors that previously have not been explored in the literature.

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

Abstract Studying the determinants of international conflict, researchers have found a series of influential variables, but few have addressed the robustness of the results to changes in the definition of the dependent variable, conflict. The two main sources for operationalizing conflict in empirical work are data on militarized interstate disputes (MIDs) and events data. In this paper, we find that a χ2-test indicates a correlation between events data and MIDs data. However, detailed regression analysis indicates that there are some contradictory findings depending on whether we use events data as opposed to MIDs data to measure conflict.

Economic Costs and Consequences of War

In analyzing the cost of war, it is convenient to classify or partition costs in two ways. First, a distinction should be made between whether the cost and consequences are internal or external, that is, whether they are borne directly by the participants or by the wider international community, respectively. This distinction is similar to the one made in economics between private and social costs. If the decisions to go to war are based on the calculus of whether the private benefits outweigh the private cost of going to war, then many wars could be prevented if the parties involved internalized the higher social cost imposed by their actions. Once this distinction is emphasized, the importance of developing institutions which provide the proper incentives or mechanisms to account for these external effects becomes evident. Another useful classification is between the direct and indirect effects or consequences arising from war. Direct effects will involve those immediately arising during and after the war and generally are restricted to the economic effects from casualties, displacement of populations, and destruction of infrastructure and other types of physical capital. The indirect effects are much more subtle and will persist into the future as, for example, famine, disease, and the changes in the political and civil society that can occur as a consequence of the event. Since institutions are important to economic activity, these events have profound effects on the economy. Finally, we may also make a distinction between a static and dynamic analysis of the consequences of war. Table 1 presents an example of the categorization scheme.

Technological Progress, Alliance Spillovers and Economic Growth in a Disaggregated Arms Race Model

The paper develops a model of the intertemporal allocation of consumption where the role of national security is in protecting the wealth of a country from an attack by an adversary. The model disaggregates weapon systems into those which reduce the likelihood of an attack and those which reduce the damage from an attack. Examples of the former type of weapons include bombers and ICBMs and of the latter, anti-tactical missiles like the Patriot or an antiballistic missile system such as SDI. It is shown that technological innovation in offensive weapon systems lead to increases in the deployment of these systems but to decreases in the deployment of defensive systems. Whereas the effects of technological innovations in damage-limiting or defensive systems are ambiguous. Alliance behaviour is analyzed within this framework and it is shown that free riding is reduced or eliminated by the introduction of multiple weapon systems.