The Role of Investment in the Equilibrium of International Political Economy: Game Theory Approach

Salah Salimian, Mahdi Movahedi Beknazar and Zahra Khalilzadeh Silabi

International Journal of Finance, Insurance and Risk Management, 2023, vol. 13, issue 3, 131-145

Abstract: Purpose: The researchers in the international arena, especially in the ‘liberal tradition’, emphasize on the effect of international economic cooperation such as trade and investment in the expansion of peace and prevention of war. Based on this, the present study has tried to utilize "Game theory" to give a different answer to this main question of, how economic cooperation in the form of international investment could prevent peace or promote peace in addition to maximizing the profit of the investors. Design/Methodology/Approach: In this paper, using game theory and presenting a static game between players, the game modeling between investors and countries has been done. Findings: The results indicated that risks and output inside and outside the country is a direct function of external risk and economic power, of course, this relationship is reversed for the investor. Finally, if the hostility degree (ρ) between countries is zero, then the countries will achieve a maximum positive outcome which will increase with the decrease of economic power. Practical Implications: The results confirm that economic cooperation, while reducing conflicts between countries, can also prevent military conflicts and strengthen peace. In addition, convergence and economic interdependence not only reduce the likelihood of war, but also increase the welfare of the parties involved, and this result is a significant reason to strengthen the avoidance of war. Originality/Value: Investors and countries are recommended to use the results of this study and pave the way for world peace by creating international markets.

Keywords: Peace; Game theory; Static games of complete information; Nash Equilibrium. (search for similar items in EconPapers)
JEL-codes: C70 C71 D50 F52 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:ers:ijfirm:v:13:y:2023:i:3:p:131-145

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