The Economy of Conflict and Peace: Liberalism, Balance of Power, and the Economics of Belonging

This paper develops a unified institutional-economic theory of international peace grounded in the Economics of Belonging (EDP). It argues that the dominant paradigms in international relations—liberalism and realism—are structurally incomplete in a world characterized by deep interdependence, macroeconomic shocks, and fragile global institutions. The paper proposes that durable peace is not the automatic outcome of democracy or deterrence, but an institutional-economic equilibrium in which interdependence is transformed into shared belonging through systems of arbitration, enforcement, and trust. The argument is supported by three components: (i) a comparative historical analysis (1919–1939 vs. 1945–1973), (ii) a formal coordination model with multiple equilibria (belonging vs. coercion), and (iii) descriptive global evidence on trade, conflict, and military expenditure. The central thesis is that when institutional capacity and legitimacy weaken under shocks, the international system endogenously shifts from cooperative equilibrium toward coercion. Peace, therefore, is an institutional requirement of interdependence, not a spontaneous outcome. This work contributes to international political economy, institutional theory, and global governance by reframing peace as a problem of equilibrium selection under institutional constraints.