A Modern Peace?: Schumpeter, Conflict, and the Investment-War Tradeoff

Drawing on the writings of Joseph Schumpeter, we develop a theory of international conflict that challenges proponents of the liberal peace research programs. We outline a simple mechanism whereby industrialization fosters peaces, suggesting that industrialized states are more peaceful because they can gain more by investing at home than by pursuing foreign military conquest. We borrow from Schumpeter to argue that our mechanism is distinct from traditional measures of liberalism. Empirically, we propose a measure of industrial development, based on the size of a state's industrial GDP. Using World Bank sector-specific economic data, our analysis shows that a large industrial GDP significantly reduces the likelihood that a state will be involved in a fatal military conflict. We show that this result is robust across a number of model specifications, holds at both the monadic and dyadic levels, and suggests a larger substantive effect than either democracy or capitalism.