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On 8 December 1996, Thomas L. Friedman published his Golden Arches Theory of Conflict Prevention, which states that, "No two countries that both have a McDonald's have ever fought a war against each other." The rationale, according to Friedman, is that when a country reaches the level of economic development required to support a McDonald's, people in that country will stop fighting wars for fear of the resultant economic and personal losses. McDonald's, as a global foodservice retailer, represents not just a quality standard of living, but also, in the words of James Cantalupo, president and chief executive officer of McDonald's International, "a symbol of something-an economic maturity and [openness] to foreign investments."1
Since then, Friedman's claim, along with the publication of his popular book, The Lexus and the Olive Tree: Understanding Globalization, has generated enormous interest and attracted scrutiny.2 For the purpose of this essay, if McDonald's is viewed as a symbol of foreign investment, interesting questions arise regarding the relationship between foreign direct investment (FDI) and interstate military conflict. Is it the presence of McDonald's that induces interstate peace? Or is it the absence of interstate military violence that leads to McDonald's investment? For Friedman's claim to be valid, the presence of McDonald's should induce peace rather than the other way around. But in reality, capital typically evades violence.3 Scholars in international relations, business and economics have concerned themselves with these difficult questions before, but not to a sufficiently detailed level of analysis.
This essay will examine some key positions, arguments and evidence in recent academic scholarship on whether foreign investment mitigates interstate violence, as well as whether interstate conflict deters investment. Evidence will be offered using new data on bilateral foreign investment flows and militarized interstate disputes. At a time when international production-widely viewed as one of the most salient aspects of globalization-has been increasing in volume and expanding in scope, many developing countries compete to attract foreign capital, the relationship between FDI and interstate peace is a timely and significant topic.4
DEFINITION, ATTRIBUTES AND GROWTH OF FOREIGN DIRECT INVESTMENT
A multinational corporation (MNC) organizes production of goods and services in more than one country, involving the transfer of assets or intermediate products within the investing enterprise and without any change in...