Finance at War: Debt, Borrowing, and Conflict
In his dissertation, Finance at War: Debt, Borrowing, and Conflict, Kelly argued that the foreign policy options available to states are strongly conditioned by their financial circumstances and relationships. Sovereign debt and access to international credit influence the range of choices available to even the most powerful nations; yet international relations literature largely overlooks the impact of finance on state behavior. War finance involves strategic choices between taxes and debt, and between international and domestic creditors. By making government accountable to a diverse international constituency, borrowing abroad allows leaders to sidestep the conventional relationship between taxpayers and government. His dissertation contributed to existing literature in three ways: by offering an alternative explanation for peace among nations; by expanding regime characteristics to include variation in credit-worthiness; and by enlarging state-capacity beyond taxation and domestic elements. Kelley argued that as the ratio between wartime demand for capital relative to domestic capacity increases, so does the likelihood that states will seek foreign investment during wartime. He then explored four main conclusions: first, states that are able to raise money through sovereign debt will be more likely to engage in conflicts and international borrowing is more likely to precede major wars; second, controlling for other measures of state capacity, overall higher levels of sovereign debt will act as a constraint on belligerent leaders; third, mutual holdings of debt will make states less likely to engage in conflict with one another; fourth, changing terms of foreign loans reflect both the likelihood of interstate war and the probability that one side will prevail over another.