The Industrial Peace: Schumpeter, Conflict, and the Investment-War Tradeoff * J. Tyson Chatagnier † Emanuele Castelli ‡ July 29, 2014 Abstract Drawing on the writings of Joseph Schumpeter, we develop a theory of international con- flict that challenges proponents of the liberal peace research programs. We outline a simple mechanism whereby industrialization fosters peace, 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 devel- opment, based on its economic structure. Using World Bank sector-specific economic data, our analysis shows that a more industrialized economy 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 is independent of both democracy and capitalism. * Authors’ names are listed in reverse alphabetical order, and do not indicate unequal contributions. A previous version of this paper was presented at the 2013 SGRI conference in Trento, Italy. We thank participants, as well as Filippo Andreatta, Alessandro Colombo, Joe Grieco, Jakub Grygiel, Christopher Hill, Gary Hollibaugh, Ted Hopf, Kerim Can Kavakli, Pat Morgan, Angelo Panebianco, and Dan Reiter for insightful comments. † Corresponding author. Research Center on International Politics and Conflict Resolution, Bruno Kessler Founda- tion and Johns Hopkins SAIS, Bologna Center. Email: [email protected]‡ Research Center on International Politics and Conflict Resolution, Bruno Kessler Foundation. Email: castelli@ fbk.eu
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The Industrial Peace: Schumpeter, Conflict, and theInvestment-War Tradeo�∗
J. Tyson Chatagnier†
Emanuele Castelli‡
July 29, 2014
Abstract
Drawing on the writings of Joseph Schumpeter, we develop a theory of international con-flict that challenges proponents of the liberal peace research programs. We outline a simplemechanism whereby industrialization fosters peace, suggesting that industrialized states aremore peaceful because they can gain more by investing at home than by pursuing foreignmilitary conquest. We borrow from Schumpeter to argue that our mechanism is distinct fromtraditional measures of liberalism. Empirically, we propose a measure of industrial devel-opment, based on its economic structure. Using World Bank sector-specific economic data,our analysis shows that a more industrialized economy significantly reduces the likelihoodthat a state will be involved in a fatal military conflict. We show that this result is robustacross a number of model specifications, holds at both the monadic and dyadic levels, and isindependent of both democracy and capitalism.
∗Authors’ names are listed in reverse alphabetical order, and do not indicate unequal contributions. A previousversion of this paper was presented at the 2013 SGRI conference in Trento, Italy. We thank participants, as well asFilippo Andreatta, Alessandro Colombo, Joe Grieco, Jakub Grygiel, Christopher Hill, Gary Hollibaugh, Ted Hopf, KerimCan Kavakli, Pat Morgan, Angelo Panebianco, and Dan Reiter for insightful comments.
†Corresponding author. Research Center on International Politics and Conflict Resolution, Bruno Kessler Founda-tion and Johns Hopkins SAIS, Bologna Center. Email: [email protected]
‡Research Center on International Politics and Conflict Resolution, Bruno Kessler Foundation. Email: [email protected]
less incentive to engage in violent conflict because they have technology that can produce what is
wanted more cheaply than it can be obtained by force. Thus, we contend that the move away from
profit-seeking warfare, especially in Europe and North America (and more recently in East Asia),
is due to the e�ects of industrialization—defined here as the shift away from an agrarian mode
of production to a concentration on manufacturing, grounded in technological innovation and
continuous investment—which simultaneously made the holding of raw materials less important
and broke the “Malthusian trap,” significantly increasing material standards of living (Gat 2005,
77). Together, these factors made the acquisition of additional territory unnecessary, changing the
calculus of war and rendering it virtually obsolete from a material perspective (Kaysen 1990).
When a state shifts to an industrialized mode of production citizens’ everyday lives undergo a
material change. In industrialized economies, individuals are engaged in production. Workers are
committed to their tasks, while owners of the means of production find it more attractive to invest
and produce than to take from outside. In other words, “[t]he competitive system absorbs the full
6
energies of most of the people at all economic levels” and “there is much less excess energy to be
vented in war and conquest than in any [preindustrial] society. What excess energy there is flows
largely into industry itself” (Schumpeter 1955 [1919], 69). Moreover, once industrialized, continuous
investment is necessary to sustain economic growth, through Schumpeter’s process of “creative
destruction,” by which the state is further removed from the previous economic order.
This means that there exists an investment-war tradeo� for industrialized countries. In order
to sustain growth (a basic requirement for every industrialized economy), governments and private
entrepreneurs must reinvest profits in innovation. This creates job opportunities for potential
workers, enhancing their well-being and satisfaction with the status quo. Political leaders are
also better o� in this situation, as they can extract more revenue from a richer society. In
an industrialized economy, the risk of war threatens this virtuous mechanism of investment,
innovation, job creation, profits, and taxes, rendering war materially irrational. In other words,
each dollar that is spent engaging in militarized conflict—regardless of the money devoted to
military spending—is one dollar less to spend on the necessary activities of innovation and
economic growth. Thus, industrialization has left fewer states with what Schumpeter (1955 [1919],
4) refers to as a “concrete interest” in waging war. Although war is profitable in agrarian societies,
where land and resources are necessary for economic growth, industrialized societies grow simply
by improving upon resources.
Thus, the industrialization of the modern economy has removed many of the materialist incen-
tives for war. However, we do not argue that the material shift toward industry ensures instanta-
neous peaceful interaction between states. Indeed, some facets of industrialization may potentially
increase the likelihood of war, as realist scholars (Mearsheimer 2001, 63), “conquest pays” authors
(Liberman 1998), and lateral pressure theorists (Choucri and North 1975) have argued. However, we
believe that this does not necessarily mean that highly-industrialized, militarily-capable states will
necessarily display aggressive behaviors. Contrary to the realist view, highly-capable status quo
powers may also signal their commitment to fight if challenged, deterring conflict. With respect
to the cumulativity argument, we note that the very nature of industrialization has changed as
7
the shift “from smokestack to knowledge-based, high-technology production [...] has reduced the
cumulativity of industrial base” (Van Evera 1999, 115). Finally, we observe empirically that no
developed country has seized another during the last sixty years, and we would argue that this
is because industrial domestic resources (such as heavy industrial assets, industrial ouputs, and
machinery) have become less lootable and re-usable.
Instead, we simply claim that industrialization introduces a tradeo� between investment and
war that eventually leads to a reduction in the likelihood of conflict initially, and continues to
pacify state behavior over time. This is because, ultimately, the introduction of this tradeo� alters
the interests of the state. While agrarian societies and those that are reliant on the export of natural
resources can gain significantly from war because it is a cheap and e�ective means of resource
acquisition, gains in industrialized countries come from continuous production and innovation (see
Gat 2005, 84). Indeed, North, Wallis and Weingast (2009, 23) have suggested, wealth creation in
natural states usually comes from rent (exploitation of land, labor, and natural resources). However,
since the industrial revolution, with the shift to open-access societies, traditional sources of rent
have gradually eroded1 and innovation itself (creative destruction) has become a source of rent.
The cornerstone of our argument, then, is that industrialization removes incentives for states
to opt for war over trade (or even concessions). As states become more heavily industrialized—all
else being equal—they should eschew adventurous foreign policy. Examples of this phenomenon
abound in international relations. Consider the case of Asia during the last five decades, as
industrialization spread throughout the region. India and China, for example, were involved in
several border disputes, beginning in the 1950s, including a war in 1962. Following the onset of
industrialization in the two countries in the early 1980s (India with its Seventh Five Year Plan,
launched in 1985, and China with Deng Xiaoping’s Reforms), relations became significantly less
militarized (the final dispute including the use of force arising in 1987). A similar pattern can also
be found between China and Vietnam (who have had no fatal disputes since 1987). By contrast,
non-industrialized states tend to fight over economic issues. Examples of such disputes are
1Of course, the timing and the impact of industrialization can be di�erent for di�erent countries, and naturalstates exist even in industrialized areas (contemporary Russia can be considered a natural state).
8
common in Latin America, including the 1969 Football war between El Salvador and Honduras and
the 1965 Laguna del Desierto incident between Argentina and Chile. Thus, we primarily advance
a monadic explanation for international peace: as a state develops its industrial capabilities,
it becomes less likely to involve itself in violent international conflict. Our first hypothesis is,
therefore, a monadic one.
Hypothesis 1. A state’s level of industrialization will be negatively related to the probability that it
participates in a violent international conflict.
However, the most powerful explanations for international peace (the democratic and capitalist
peace theories) operate only at the dyadic level. In order to ensure that our results are not
somehow driven by one of these mechanisms, it is necessary to analyze dyadic-level data as well.
In so doing, we can account for the e�ects of joint democracy and joint capitalism in determining
the role played by industrialization. It should be noted that, while dyadic theories employ a “weak
link” argument, concerning themselves primarily with the lower of the two scores, an explanation
that is grounded in monadic e�ects should focus on the greater of the two. In other words, dyadic
explanations are e�ectively necessary conditions—both states must be democratic for democratic
peace theory to hold—while monadic explanations are su�cient conditions—if either state has
industrialized, then an industrial peace should hold.
Hypothesis 2. The level of industrialization of the more-heavily-industrialized state within a dyad
will be negatively related to the probability that the dyad enters into violent conflict.
Research Design
We examine our hypotheses with two di�erent units of analysis. As our first hypothesis is
monadic, we look at all countries between 1816 and 2001. Our second hypothesis requires a dyadic
approach, and so we examine all politically relevant dyads between 1816 and 2001.2 After removing
2The rationale for restricting the sample only to politically relevant dyads has been discussed in depth within theliterature (see, e.g., Maoz and Russett 1993; Choi 2011).
9
incomplete observations, our datasets range from 1960 to 1999.3 While this is a fairly short period,
relative to similar work, there are advantages to using a more compact era. In particular, when
examining several centuries, an analyst must specify a single theoretical mechanism and set of
empirical proxies for the entire period. Given the changing nature of the world and of international
conflict, this can be di�cult. By confining the analysis to a shorter era, we increase the likelihood
that our theory and measures are applicable across the entire period (see Rosenbaum 1999). We
see this as an important advantage for our analysis.4
For both the monadic and dyadic components of our study, we are interested in whether there
is a relationship between industrialization and violent conflict. For this reason, our dependent
variable takes a value of 1 if, during the year in question, the state or dyad becomes involved
in a new dispute that results in at least one fatality, and 0 otherwise. We choose to restrict
our analysis to fatal MIDs because our theoretical mechanism says nothing about the origins of
disputes. Rather, it suggests that industrialization should reduce the likelihood of violent conflict.
This operationalization is consistent with recent work on liberalism and peace (e.g., Hegre 2000;
Mousseau, Hegre and Oneal 2003; Gartzke and Weisiger N.d.), and averts the problems associated
with the reporting of many non-fatal disputes (see Weeks and Cohen 2006). Our measure of
fatal MID onset comes from the Militarized Interstate Disputes dataset (Ghosn, Palmer and Bremer
2004).5
Our primary variable of interest is the structure of a state’s economy. This goes beyond simply
development. Rather, we are interested in the types of endeavors in which the state is involved. In
particular, we want to distinguish states who invest heavily in manufacturing and industry from
wealthy “resource-rich states,” who gain primarily from selling raw materials (and thus cannot
3The dyadic dataset is shorter, due to a lack of data for some of our dyadic control variables after 1993.4Of course, it is not unreasonable to wonder about the robustness of our results, especially if the 1960–1999
period is unique in some way. Furthermore, if missingness is not independent of key explanatory variables, there is alegitimate concern that it could be driving our results. Indeed, one of Dafoe’s (2011) key criticisms of Gartzke’s (2007)analysis is that the listwise deletion of missing data significantly altered his results. To ensure that our findings arenot simply an artifact of data missingness, we have analyzed imputed datasets, covering all countries and politically-relevant dyads over both the time spans considered here and the entire range of the MID dataset (1816–2001), usingAmelia II in R (Honaker, King and Blackwell 2008). The details and results of these analyses are available in theappendix, and with respect to industrialization, are consistent with those presented below.
5All MID data were generated using EUGene v.3.204 (Bennett and Stam 2000).
10
profitably trade for them). We expect the behavior of these types of states to be significantly
di�erent. We operationalize this di�erence by looking at the contribution to each state’s GDP by
its industrial sector in a given year (World Bank 2013). We also include a measure of the size of
the service sector, as it is possible that states with service-oriented economies will also behave
di�erently. In our monadic analysis, we use the appropriate measure for each country-year; in
the dyadic section, because we theorize that the e�ect operates at the country level, we use the
greater of the two states’ industrialization levels. With respect to the service sector, we use the
size of the service sector for the state with the higher level of industrialization (agriculture serves
as the omitted category).
At both the monadic and dyadic levels, we control for democracy, using Polity scores (Marshall
and Jaggers 2002), and capitalism. In the dyadic case, we include both the lower score, measuring
joint democracy (Dixon 1993), and the higher, which measures regime dissimilarity (Oneal and Ray
1997). There is much less of a consensus, however, about what constitutes capitalism. Scholars
have o�ered a number of possible measures. Gartzke (2007) primarily defines capitalism in terms
of market openness, as measured by the International Monetary Fund (IMF), which proxies for the
degree to which the government engages in laissez-faire policies. McDonald (2010) takes a more
direct approach to government involvement, examining the distribution of property ownership
within a state, using IMF data on levels of governmental nontax revenue. Finally, Mousseau (2012)
proxies for capitalist norms, using World Bank data on per capita life insurance contracts in force
in each state. These measures all have their own merits as proxies for capitalism, and so we
examine a number of di�erent models, controlling for each measure in turn. This allows us to
assess the robustness of our results, with respect to various operationalizations of a key concept.
Studies of the capitalist peace, like those of the democratic peace before it, suggest that the
theoretical mechanism is dyadic in nature. Therefore, we adopt the “weak link” approach here, as
with democracy, using the lower dyadic capitalism score for each measure.
In addition to economic structure, democracy, and capitalism, there are a number of other
variables that potentially a�ect the likelihood of conflict onset. At the monadic level, we control
11
for the state’s development (logged GDP per capita), material capabilities, major power status, total
trade (in logged millions of U.S. dollars) in a given year, and whether it was a nuclear power. At the
dyadic level, we use Gartzke’s model as a baseline, controlling for dyadic economic development,
using the smaller (logged) GDP per capita for the dyad; the log of the stronger state’s share of
dyadic CINC scores; whether either state was a major power; the lower level of dyadic economic
dependence (dyadic trade divided by GDP); whether the two states are contiguous (up to 25 miles
of water); the (logged) distance between the states; whether the two states were involved in an
alliance; the total trade (in logged millions of U.S. dollars) between the two states in a given year;
Gartzke’s measure of UN voting similarity, using Signorino and Ritter’s (1999) S-scores; and whether
either state possessed nuclear weapons. The majority of these data come from the MID dataset,
while trade measures come from the Correlates of War (COW) dyadic trade dataset (Barbieri, Keshk
and Pollins 2009), and GDP comes from the Maddison project (Bolt and van Zanden 2013). To
account for the possibility of reverse causality, we lag time-varying covariates by one year.
Finally, Gartzke (2007) argues that there may be unobserved heterogeneity at the region level.
For this reason, he includes region dummies. We do the same, but we use the more traditional
COW coding for regions, creating dummy variables for North America, South America, Asia,
Europe, Africa, and the Middle East. At the monadic level, we simply indicate the region to which
the state belongs (Middle East is the omitted category). At the dyadic level, following Gartzke, we
code whether both states are in a given region.
As the dependent variable is dichotomous in both cases, we employ a logit framework, con-
sistent with previous research. Given the structure of the data, we are faced with two additional
problems, both of which could bias standard errors. The first concerns the fact that we observe
particular observations repeatedly over time. This generates the possibility of correlation within
groups that is not explicitly modeled. To deal with this, we cluster standard errors on countries at
the monadic level and on dyads at the dyadic level.
The second issue is one of temporal dependence: as peacetime progresses, states may become
more or less predisposed toward peace, irrespective of the covariates included in the model.
12
One method for treating temporal dependence is to use natural cubic splines to create a smooth
function of time (Beck, Katz and Tucker 1998). This approach has two disadvantages. First, splines
are unintuitive and are di�cult to interpret. For this reason, the substantive e�ect of time is
often unclear to the reader. Second, an appropriate implementation of the natural cubic spline
requires the selection of an appropriate number and placement of knots, which is a challenging
task, and one for which there is little clear guidance. The improper use of time splines can have a
significant confounding e�ect upon statistical inference (see Dafoe 2011). For these reasons, we opt
instead to use Carter and Signorino’s (2010) cubic polynomial approach, which has been shown to
provide results that are similar to optimally-implemented splines, while at the same time requiring
fewer additional assumptions and being relatively easy to interpret.6 We use t (time since the last
fatal conflict), t 2, and t 3 in all of the models below.7
Analysis
We are interested in determining both the monadic- and dyadic-level e�ects of industrialization.
To this end, we examine a series of models at two di�erent levels of analysis. We begin by looking
at how economic structure a�ects the probability of fatal MID onset at the country-year level, and
then move to an analysis at the dyad-year level.
Table 1 provides the results from the state-level analysis. Notably, beyond the controls for time
and region, relatively few variables have significant explanatory power. Although signed correctly,
neither the polity score nor the various proxies for capitalism attain statistical significance at the
p < .10 threshold in any model.8 Additionally, log-likelihood tests on restricted samples show that
the baseline model is preferred to all three models that include capitalism. This is no surprise, as
the theoretical mechanisms underlying both the democratic and capitalist peaces operate at the
6Our results are robust to the use of splines.7The range of the t 3 variable, relative to the ranges of other variables can introduce problems. We handle this by
rescaling the polynomial.8One concern is that industrialization is tapping the same concept as democracy or capitalism. We provide
empirical evidence that this is unlikely in the appendix.
13
Table 1: Country-year determinants of fatal conflictModel 1 Model 2 Model 3 Model 4(Baseline) (McDonald) (Gartzke) (Mousseau)
Mousseau Democracy −0.037Mousseau Capitalism 0.141∗p < .10; ∗∗p < .05; ∗∗∗p < .01. All tests are two-tailed tests.
Table 4: First Di�erences by Region20
deviation shift about the mean for each of the variables of interest. We generally set continuous
and ordered variables to their approximate median values in the dataset. As before, we set the
size of the economic sectors to 30%. Our profile assumes contiguous states (thus, zero distance),
and we set other dummy variables to zero. Finally, as before, we assume that the dyad is in its
first year of peace.
The dyadic results are somewhat di�erent than their monadic counterparts. While the statis-
tical di�erences between industrialization and the indicators of political and economic liberalism
are substantial, the substantive di�erences are not. The e�ect of a one-unit shift in industrial-
ization about its mean is very similar to the same shift for democracy or capitalism. In fact,
in many cases, the e�ect of democracy is larger than that of industrialization. Additionally, the
largest estimated e�ect in the table is the contract intensiveness variable, which is expected to
increase (rather than decrease) the probability of fatal conflict onset by 0.164 in Africa. While
our estimates of the e�ects of the liberalism variables are not precise enough to be certain that
they are non-zero, the estimated e�ects are large enough to be worth noting. Given the size of
the e�ects, despite the lack of statistical significance, it is di�cult to discount a possible role for
liberalism.
Both the statistical and substantive results provide support for our hypotheses, demonstrating
the impact that industrialization can have on the likelihood of fatal conflict onset. While neither
democracy nor capitalism has any e�ect on the probability of war at the monadic level, and
both have strong but uncertain e�ects upon dyads, industrialization has a large, significant, and
robust dampening e�ect at both levels of analysis, even when we control for various measures of
liberalism. Taken together, this suggests that economic structure plays a critical role in the conflict
behavior of states.
21
Conclusion
This paper began by proposing a mechanism for international peace based on the writings of
Joseph Schumpeter. We theorized that industrialization can have a pacifying e�ect upon a state’s
foreign policy. Our analysis demonstrates that this argument is consistent with the historical
record. Over the period analyzed above, states with higher levels of industrialization were less
likely to become involved in fatal militarized disputes than were their less-heavily-industrialized
counterparts. These results suggest that the “conquest pays” argument (applied to industrialized
societies) does not fit the empirical evidence, at least within the period considered here. More
importantly, our hypotheses hold at both the monadic and dyadic levels, even when controlling
for political and financial liberalism, and accounting for missing data. This suggests that indus-
trialization has an e�ect that is independent of liberalism, and may explain recent shifts to more
peaceful foreign policy by authoritarian powers, such as China (see Kurlantzick 2007). Further-
more, unlike democratization, from which it is easy to backslide into authoritarianism (as has
occurred repeatedly throughout Pakistan’s history, for example), states that have industrialized do
not revert to pre-modern, agrarian societies (see Huntington 1971, 290).
The argument that industrialization engenders a shift to a more peaceful mode of interstate
conduct is concordant with Schumpeter’s general claims about economic progress and war, in
which he noted that “[i]mperialism is [. . . ] atavistic in character” (Schumpeter 1955, 65). Further-
more, as Jervis (2005, 22) points out, “[t]raditional liberal thought [. . . ] stressed that economic
activity was so potent [. . . ] because it reconstructed social values to downgrade status and glory
and elevate material well-being.” This suggests a possible linkage between industry, democracy,
and capitalism, such that democratic and capitalist norms can be generated by a shift to industri-
alization. Thus, over time, the material roads to peace fostered by industrialization may give way
to immaterial causes. Some preliminary evidence for such a shift is that, although both material
and immaterial factors remain important today, the most common motivations for fighting have
changed considerably since the Industrial Revolution: material issues (territorial and economic
reasons) have waned, while immaterial issues (ideological, human sympathy) have waxed (Holsti
22
1991; Freedman 2005). While testing this hypothesis is beyond the scope of this paper, we note
that our results are not inconsistent with the attitudinal framework put forward by these authors
or by liberal peace theorists (e.g., Maoz and Russett 1993; Mousseau 2013), as we find evidence
that peace begets peace, which suggests that the peace that is fostered by industrial development
should be a lasting one. We invite future researchers to examine this relationship more directly.
A related observation is that while industrialization has a robust and significant e�ect on
conflict, the size of the service sector never attains significance. This may be the result of a
post-materialist value shift (see, e.g., Inglehart 1997), following the transition to a less-materialist,
service-based economy. This could facilitate a greater emphasis on ideology, such that a state
simply becomes involved in political and humanitarian conflicts, rather than interest-based dis-
putes. Thus, post-materialist, service-oriented states may be no less likely to fight, in general, than
materialist, agricultural economies; rather, the issues over which conflicts occur would change.
Investigating this mechanism is also beyond the scope of this paper, but we encourage others to
investigate the possibility.
While our results are robust and substantively powerful, this analysis is a first investigation into
a new theory. Thus, we o�er a few important caveats. The first concerns the temporal e�ects of
industrialization on war. Schumpeter’s argument is not that development will lead to a complete
cessation of international conflict, but that the shift to industrialization reduces the material
incentive to wage war. His main argument draws upon the economic motivation for warfare:
since the Industrial Revolution, he argues, few wars have been waged for material gain. While it
is always true that “many people stand to gain economically in any war” (Schumpeter 1955 [1919],
75), the spread of industrialization—especially high-tech, knowledge-based industrialization—has
rendered war unprofitable in more general terms. Aggressive, expansionist policies, then, may
remain as a legacy of the past, and are thus primarily the domain of the pre-industrialized state.
To the extent that industrialized states engage in such behavior, they are driven by habit and
inertia, rather than real and rational interest.
Second, and relatedly, our claims about the pacifying e�ects of industrialization are less expan-
23
sive than those of democratic peace proponents. In particular, we do not claim that industrialized
states never fight one another. Indeed, “atavistic” ideologies can be powerful factors that fan the
flames of conflict, even for relatively modern societies (see Schumpeter 1955, 65). This means
that imperialist or expansionist ideologies may still emerge—and, in fact, these were the primary
motivations for the two world wars, fought by industrial powers in the first half of the twentieth
century—despite any changes brought on by the shift to industrialization, as in the case of Britain
during the nineteenth century or Germany and Japan before World War II. Nonetheless, we suggest
that industrialization removes a key incentive for war, sharply reducing the likelihood that conflict
erupts.
Third, our primary analysis covers a relatively limited period, from 1960 through the 1990s.
An advantage of this design is that it increases the likelihood that the same mechanisms are
operational throughout the entire period being studied. A disadvantage is that we cannot be
certain that out results will hold outside of this range, though our supplementary analysis with
multiple imputation suggests that it is plausible. As more data become available, future research
should extend the period of analysis, and determine whether the theory continues to receive
empirical support
Finally, with respect to our dependent variable, we stress that our results concern fatal disputes,
rather than disputes in general. Industrialization does not necessarily reduce the probability that
states will become involved in conflict; instead, it makes peaceful resolution of conflicts more
likely (i.e., it decreases the probability that states actually engage militarily).
Our analysis also o�ers several policy implications. First, because the relationship between in-
dustrial development and peace is independent of political regime, our results suggest that, when
confronting other industrialized countries, Western democracies should engage them diplomati-
cally and economically (rather than militarily), regardless of the latter’s regime type. This could
be particularly applicable with respect to the emerging confrontation between the U.S. and China.
Second, the results provide both theoretical and practical implications for reducing international
conflict and promoting stability, especially in war-prone regions. Theoretically, it suggests that
24
encouraging economic development in underdeveloped countries might be better than fostering
democracy. While established democracies may share peaceful norms, focusing on democracy
first may not be optimal. As European history has shown, freedom takes time to consolidate,
and exporting the Western political model to non-Western areas has caused unexpected compli-
cations. Wealth and quality of life, on the other hand, are more universal, and might be attractive
even in autocracies and dictatorships. Practically, the model shows that peace can be facilitated
through industrialization. While nations accrue wealth from several sources (agriculture, finance,
exploitation of natural resources, and even foreign aid), industrial development alone can strongly
encourage peace, as “energy for war becomes energy for labor” (Schumpeter 1955, 69). Moreover,
because industry inherently requires continuous innovation (creative destruction), industrialized
nations will necessarily be presented with an investment-war tradeo�, in which they can profit
most by choosing economic development.
25
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