The Effect of Economic Relation on International Peace

The globalization developed rapidly after the Cold War. The effect of economic relation on international peace becomes more and more significant. Especially, the effect of international trade and foreign direct investment (FDI) draws much attention. After the literature review, the paper uses the panel data of 29 countries in 1991-2000 periods to do empirical research. Through constituting VAR model to do variance decomposition, the paper explores that the trade and FDI has prominent effect in reducing international conflict, and trade and FDI can promote international peace complementarily. The cross-Strait political relation is analyzed as a case. The paper discovers that the development of trade and FDI between mainland and Taiwan is the Granger cause of their peace, so that it can promote the bilateral relation.