Can Trade and Foreign Direct Investment Signals Reduce International Conflicts?

Abstract

After the Cold War, the effect of international trade and foreign direct investment (FDI) on international conflict becomes more and more significant. After evaluating the international conflict, the paper uses system of simultaneous equations to do empirical research and discovers that the trade and FDI, which can work as information signals, have prominent effects in reducing international conflict. Through constituting VAR model to do variance decomposition, it is found that these two signals, trade and FDI, could mitigate international conflict complementarily.