Military Securities: U.S. Capital Flows and Military Presence Abroad.

Scholars interested in the link between economic and military interests have asked whether trade follows the flag. Studies in this vein tend to examine the causal relationship between trade flows and diplomatic relations as measured through conflict or alliances. While informative, this formulation of economic interests neglects a vital--and extremely significant--aspect of US economic power: financial capital. In this paper we analyze the relationship between overseas asset flows and diplomatic relations, as estimated through US troop deployment. As both US financial flows and US military presence spread throughout the world, it is quite timely to untangle the causal arrow and illuminate whether economics guides politics or vice versa. In this paper, we explore the nature of the relationship between troop deployment and asset flows. Are financial flows and US military presence substitutes, as both serve to protect and expand the US national interest? Or, in contrast, does the US military ?stand guard? over vital economic interests, ensuring both economic and political stability within a state? This paper tests each hypothesis, utilizing both granger causality as well as an instrumental variable technique to determine not only the direction of causality between these economic and political variables, but also whether or not diverse financial flows similarly impact US troop deployment. [ABSTRACT FROM AUTHOR]