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Sajal Lahiri and Valerica Vlad
''Peace Dividends in a Trade-theoretic Model of Conflict''
( 2012, Vol. 32 No.1 )
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: F2 - International Factor Movements and International Business: General
H8 - Public Economics: Miscellaneous Issues: General
Manuscript Received : Oct 25 2011 Manuscript Accepted : Feb 26 2012

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