Will Economic Cooperation Make Better Territorial Dispute Management for Rising Powers? Insights from Empirical IR Studies and the Implications to the India-China Case

Will more cooperation in economic affairs help manage the historic territorial disputes between China and India? Many researchers in conflict studies find that closer economic relations, i.e. more bilateral trade and mutual FDI not only prevent territorial disputes from escalating to interstate wars but also contribute to fewer bilateral militarized interstate disputes. However, how would different factors of “commercial peace” apply to rising great powers with long time territorial disputes? In this quantitative analysis using the most up-to-date dataset, Professor, Roger Chi-Feng Liu, argues that the pacifying effect of trade towards territorial militarized interstate disputes (TMIDs) is not as significant as the effect brought by FDI between two rival powers. It is even more likely for trade to cause more minor TMIDs (non-lethal incidents involving the display of force), especially under an asymmetric trade relationship in which one country enjoys long time trade surplus. FDI, on the other hand, is more likely to reduce the incidence of TMIDs by increasing information and interests (e.g. creating more job opportunities and technology transfer) between two countries engaging in territorial disputes at both levels of state and society. However, the pacifying effect of FDI diminishes when countries in a potential rivalry relationship turn their economic relationship into a competitive race focusing on the relative gains.