Capital and Conflict: The Effects of Power Politics on International Finance

Great powers frequently intervene in their economies to influence investment flows. These interventions, which I call capital management strategies, seek to either limit or promote investment coming into or going out of a state’s economy. My dissertation asks what explains the capital management strategies great powers adopt. I argue that security concerns, particularly about the balance of power and dependence, drive great powers to adopt different capital management strategies vis-à-vis other great powers in the international system. The specific strategies great powers adopt are determined by two different causal variables: threat level and investment position. Threat level, determined by another state’s proximity and relative power, provides the motivation to either limit or promote investment relations. Investment position, the net balance of inflows, outflows, assets, and liabilities, determines whether a capital management strategy will target investment inflows or outflows. Great powers tend to limit investment relations with those they view as greater threats and seek to encourage investment relations with those they view as less threatening or as important to their own security provision, such as allies. I test my theory in a least-likely case: the US, from 1870 to 1995. Despite principled hostility to government intervention in economic affairs, I find strong evidence in favor of my theory. On many occasions throughout its history, the US has changed capital management strategies in response to changes in its investment position and/or changes to the level of threat other great powers posed to it. My theory’s ability to explain and predict outcomes in this least-likely case gives me a large degree of confidence that it holds for most other great power cases. These findings have implications for established explanations of great power investment policies which discount the role security concerns play in driving outcomes.