Economic background of conflicts between countries

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Economic background of conflicts between countries

Economic reasons had been the source of conflict between countries. Collins (2016) highlighted that Europe faced lots of turmoil as development in one country deprived other countries of productive economic resources. The economic growth of one country at the cost of another country became a source of conflict between European countries, such as, e.g., France and Germany. Collins also observed that the European nations that developed their road infrastructure and contracts with other nations for favored access to resources and routes, had increased accumulation of wealth. Conversely, their trading partners, instead of flourishing, became poorer (Collins, 2016, p. 176). It implies economic prosperity in one country may be at the cost of another country.
Contradicting Collins and Wade (2012) suggested that considerable evidence asserts that economic development in a state provides constructive outcomes for the trading partners as well as for neighboring states to grow at a consistent rate because economic development is not a zero-sum game but a positive-sum game. Countries obtain/develop resources that may help them in controlling/deterring their rivals, but it does not mean to always have superiority, for this, it requires that a country could be able to justify and defend its position. This asserts that development in one country may attracts another country to initiate a war with the former so that later, usually stronger, may control the resources of the former country which has considerable economic potential.
The US and Iraq conflict is a good example where US invaded Iraq to control the oil and other economic resources of Iraq. The main motivation of this invasion was the economic prosperity of the US which can be used to leverage across the world, both in economic and political terms (Avant & Sigelman, 2010). Likewise, the conflict between North Korea and the USA over the Korean nuclear program is also an example of a situation in which a country (US) is interfering with another country (North Korea) without any probable threat to the USA (Onuf, 2012). It can be implied that such interreference of US in North Korean may have some hidden agenda, which could be economic or otherwise (Snyder, 2013). This literature shows that inter-state conflicts disturbed their relationships and hinder their economic development dependent on those relations. Onuf (2012) suggested that when if country perceives that a rival country is economical progressing, the first country may initiate conflict with its rival. Snyder (2013) added that scale of conflict may increase to the level of full-scale war as conflicting parties will try to defend their interest, capabilities, and existing and future positions. Even if it erupts at once, one can identify the conflicting situation, which ignited the situation. These may be sufficient for subsequent conflict behavior among the parties to the conflict. Moreover, Mitchell (1989) asserted that at times countries have different expectations from an important development project. The incongruence may be in the form of sacrificing material benefits from the development project so countries may initiate full-scale war. Mitchell’s work shows that such situation can be resolved if parties to the conflict can establish a dialogue and share their concerns so that the issue can be resolved.

Dimensions of the economic development

Harrod (1960, p. 48) suggested that for developing a country, it is important to understand the factors that serve as the basis for the economic development of the country in terms of trade, economic ventures, investment, development of economic institutions, and peace. This section will present a review of the literature on dimensions of economic development.


Nelson and Winter (1974) suggested that international trade is a fundamental factor of economic growth and development of a country. Trade between two countries generates economic activity which is beneficial for both countries. Exporting goods to other countries provides an opportunity to the local producers to use their idle capacity and sell excess production to those countries, which have demand and ability to purchase those goods and services. Even the importing country gets benefit from trade, as its people will obtain those goods and services from which they were previously deprived. Sial (2014) suggested that even a country that does not buy or sell to another country but just provides land for transporting goods between countries can still earn money in the form of increased business activity as well as duties and taxes.


North (1994) regarded investment as an important driver of economic prosperity in the country. He suggested that in an international scenario, investment comes in the form of foreign direct investment (FDI) in the country. This money can be spent on the development of infrastructure, institutions, technology, or people. The last few decades bring lots of evidence where FDI transformed the economies. Two pertinent examples are Malaysia and Singapore. Also Easterly and Levine (2001) suggested that such investment in the resources of the country not only increases revenues of the economy but also increases the production capacity of the economy as a whole. It paves the path towards economic development and prosperity.

Economic prosperity

Mokyr (1992, p. 210) showed that improved factors’ productivity leads to economic prosperity of a country. The creativity and innovation of the people and organizations in the country become the basis of the development of unique products and services (Porter, 2001). These goods and services become the basis of the development of competitive advantage in the country. Such goods and services are sold to people in both local and foreign markets and thus help the country to earn revenues and use these for fostering economic development and prosperity.

Sound institutions

Nelson and Winter (1974, p. 71) suggested that the institutional base (banks, educational institutions, judicial courts, parliament, army, stock markets, financial sector) of a country provides a significant boost to its prosperity. It helps trade, investment, technology, and economic activities to flourish and move to prosperity and development.

Equity joint ventures

Beamish and Banks (1987) highlighted the emergence of equity joint ventures (EJV) and suggested that during the 1980s EJVs had sporadic growth. It is a form of a business association in which two or more parties (at both firm and government level) start a project by contributing resources to achieve common goals. Luo and Park (2004) highlighted the case of multi-party EJVs in international projects and suggested that since stakes of more than one party are involved, everyone tries to get the benefit of it. They highlighted that there is a substantial positive impact on cooperation between partners on performance as perceived by partners. Furthermore, Pan (1997) emphasized the case of EJV of Japan and the USA in China and suggested that EJVs have become the most common source of FDI in recent times. Owing to its importance, it has become an important area of managerial attention. Harrigan (1988) highlighted that despite its advantages, multi-government level EJVs have associated challenges. Park and Russo (1996) asserted that EJVs might have to face the curse of competition from the non-participating parties and there are times when the hurdles created by the non-participating parties have more devastating impact as compared to the benefits arising from the cooperation of the participating parties. They also asserted that this situation is devasting as participating have more to lose and less to gain from such participation.


This chapter presents the theoretical framework that I consider as relevant to the topic being researched.

Development theories

Rapley (1997, p. 43) suggested that development theories deal with bringing change in the society and economy and are developed from a variety of scientific disciplines (including sociology, political science, economics, anthropology, etc.). These theories focus on resolving problems of underdevelopment and structural transformation of economies (Leftwich, 1996). Moreover, development theories involve analysis of social changes and differences and implications of such disagreements over historical, cultural, ecological, and economic aspects of societies (Kothari, 2004, p. 165). In the modern sense, development implies intentional social change (Hettne, 1995, p. 49). A country may start development projects to control its rivals (Pieterse, 2010, p. 216). For instance, the development of dams by a country (upper riparian country) may deprive the neighboring countries (lower riparian countries) of water which will hamper the agriculture and industrial sectors of the lower riparian countries. Leys and Shaw (1996, p. 52) presented a detailed account of the progression of development theories and suggested that while most of the theories contributed one or more postulates, the primary motive of these theories was the development of policies and methods through which countries can improve their economic prosperity.
A major distinguishing feature of development theories is to include social and political factors in theory formation. These theories focused on the rise of nations yet little attention was given to the concept of development (Ekelund and Tollison, 1981, p. 27). The next notable contribution in development theory came in the form of ‘economic nationalism’. It appeared in the 19th century and was related to development through domestic production and industrialization (Stern & Wennerlind, 2013). USA and Germany had been the major proponents and beneficiaries of economic nationalism. The focus of these theories remains on economic growth and structural transformation (Levi-Faur, 1997). A significant contribution in this area came from the work of Rostow (1959, p. 187) who put forth linear stages of economic growth. Rostow advanced the work of Marx and modified Marx’s stages theory of development. Rostow emphasized that utilizing both local and international resources may lead to economic development in the country. Another significant contribution came from the work of Harrod (1960, p. 37) who linked capital investment with economic growth. The theories of this time (1960s) were criticised as they were more focused on capital accumulation. Moreover, these theories did not focus on overcoming political, social, institutional, and international factors, which may hinder the development of a country (Arndt, 1989). After 1960s, it was the era of structural change theories. The focus after 1960s, remained on changing the economic structures of developing countries. This involved reduction in reliance on the agricultural sector and the development of infrastructure towards a more modern, urbanized, and industrial manufacturing and service economy. Structural change theories were criticised for being overly focused on the development of urban areas while ignoring rural sectors of the economy (Snyder & Kick, 1979). Although these theories have associated criticism, yet they are highly relevant for their application in the real world situations.

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Rostow’s stages of economic development

Rostow theory of economic development is the first major theory that will be used for achieving research aim and answering research questions. Rostow (1959) presented the theory of economic development of a country which is still valid in the present era. He suggested that if a state spends money on training, education, and economic investment, then it may get out of poverty and move towards prosperity. Such payment can be arranged from local resources of the country or may also come in the foreign direct investment in the country. There are five stages of economic development, commonly referred to as the economic ladder of the country. The first stage is known as ‘traditional societies’ in which subsistence dominates economies, people have limited wealth, and the level of industrialization in such societies is also very low. The second stage of the Rostow model is known as ‘the preconditions for take-off’. In this stage, the country gets investments in the form of financial aid, expertise, modern value system, and technology. Hunter (2012) mentioned that these are used to advance science and technology which is used to improve the agriculture sector of the country. Moreover, the country also develops its infrastructure, which includes improving roads and cities. Likewise, companies from developed countries also establish their factories in these countries. Since these factors indicate, that country is on the verge of economic development, so more and more foreign companies come into the country. The third stage of Rostow’s model is ‘take off stage’ in which society starts reaping the benefits of economic development. Moreover, a new urban class emerges in the country. This urbanized group tends to take the risk and invest in the new venture, which brings more prosperity to the economy (Hunter, 2012). Consequently, the country moves a step ahead and after fulfilling local demands, it starts exporting the rest of the products and services to other countries of the world. The economic activity trickles down on the population. This stage is followed by ‘the drive to maturity’ in which the country experiences more economic growth and investment in education. Likewise, the media of the country develops, and the population growth rate is controlled. The quality of life of people in the country improves a lot over the years. Finally, the last stage of the model is ‘the age of mass consumption’ in which the economy of the country grew to a full-blown level, and it matches the economic activity of the developed country (Hunter, 2012).
Wucherpfennig and Deutsch (2009, p. 30) highlighted that Rostow’s work is inspired from the work of Max Weber’s modernization theory. Both are considered as theories of economic development and are criticized on several basis. For instance, the Rostow model ignored country’s limits to growth. For instance, the development of projects such as dams requires lots of money for the longer period of time and countries do not have such funds. Then, these funds are provided by foreign donors or lenders. Bernstein (1971, p. 185) highlighted that when such lending is made, there could be underlying motives. For instance, one of the underlying motives of Western investment in the developing countries is to have control of the developing countries.

Conflicts over economic development

Different countries have different reasons for starting development projects. For instance, Hettne (1995) suggested that development in the modern sense implies the intentional social and economic change whereas Pieterse (2010) added that all development-related activities are not related to development: there are other benefits such as taking control of other countries. Highlighting the ways in economic development can be achieved, Hettne (1995) highlighted that there are five major elements of nation-building projects that a government may undertake. These include exclusive political and military control over a particular territory, defence of this territory, independence of creating material welfare, politically legitimization, and ability to organize culture.
Economic Development is not free from challenges. Stiglitz (1996) suggested that change in the balance of economic and political power is a sufficient cause of conflict of interest. When one party perceives that another party is engaged in development activities, which may in the future, short-run and/or long run, shift the balance of the power to the later party, then the first party initiates conflict. However, Stiglitz (1996) further stated that the scale of conflict may increase to the level of full-scale war as conflicting parties will try to defend their interest, capabilities, and existing and future positions. Such conflict may or may not erupt at once. Mitchell (1989, p. 45) suggested that there is a logical relationship between incongruent expectations from a development project, and conflict and tension between the parties. It implies that when one party perceives to be hurt by another party, it may consequently distract the relationship and turn into a full-scale war. A good example of this is the case of trade war of USA and China such USA feels that it is economically disadvantaged in its business relations with China, so it is imposing different types of sanctions on Chinese products being exported to USA and Chinese companies working in the USA (Liu & Woo, 2018). The problem became so eminent that US Chief of the Army Staff called his Chinese counterpart to assure him that US has no intentions to attack China.

Table of contents :

1.1 Research background
1.2 Problem statement
1.3 Research aim and questions
1.4 Relevance to Peace and Conflict Studies
1.5 Limitations of the study
2.1 Economic background of conflicts between countries
2.2 Dimensions of the economic development
2.2.1 Trade
2.2.2 Investment
2.2.3 Economic prosperity
2.2.4 Sound institutions
2.2.5 Equity joint ventures
3.1 Development theories
3.2 Rostow’s stages of economic development
3.3 Conflicts over economic development
3.4 Structural theory of conflict
3.5 An economic theory of war
3.6 Research gap
4.1 Research design
4.2 Designs of case study
4.3 Benefits of applying case study method
4.4 Data collection
4.5 Ethical considerations
4.6 Delimitations of the study
5.1 IWT – Stakes of India and Pakistan
5.1.1 CPEC – stakes of India and Pakistan
5.2 Economic development as basis of conflict
6.1 Future research suggestions


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