Does a country's inflation rate influence the possibility of its involvement in a foreign policy crisis?

Abstract

DOES A COUNTRY'S INFLATION RATE INFLUENCE THE

POSSIBILITY OF ITS INVOLVEMENT IN A FOREIGN POLICY CRISIS?

Naixin Zhu, B.A.

Thesis Advisor: John Christian, Ph.D.

ABSTRACT

This thesis examined the correlation between a country's inflation rate and its possibility of its involvement in a foreign policy crisis. The study was based on four assumptions: inflation made people unhappy; unhappy people pressured the government to act; the government tried to divert popular attention by the use of external force because it was much easier than fixing the inflation itself. The hypothesis proposed that higher domestic inflation would lead government to adopt more violent crisis management technique and to become more aggressive in its foreign policy. The analysis consisted of two models: In model A, the dependent variable was a binary indicator of whether the country adopted violent or non-violent crisis management technique; in model B, the dependent variable used Stockholm International Peace Research Institute military expenditure data as a proxy for the level of aggressiveness in a country's foreign policy. The study found a statistically significant relationship between inflation and crisis management techniques (p