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This study examines whether the pacifying effect of foreign direct investment (FDI) on territorial disputes between adversarial dyads is conditional upon the dyads' past experience of military cooperation. I built a political economy model and conducted a logistic regression analysis on the newly coded bilateral FDI data between adversarial dyads and the existing dataset by merging the rivalry data established by Thompson [51] and the territorial disputes data collected by Lee and Mitchell [42]. I found that when bilateral FDI flows between adversarial dyads reach a certain level the pacifying effect of FDI is stronger for adversarial dyads with past military cooperation. I also found that while past military cooperation has a pacifying effect in general, past military cooperation that occurred more recently has a stronger pacifying effect than those that occurred a while ago. Moreover, based upon the theoretical model and empirical findings in this paper, I investigated the political implications for Tsai Ing-wen's "New Southbound Policy" and Taiwan's approach to the territorial dispute issues in the South China Sea. [ABSTRACT FROM AUTHOR]