The relationship between the economic prosperity of a country and levels of peace can provide peacebuilding and investment insights. Here is a closer look at the data.
(Note: This article was first published in 2020 and has been updated in 2025 to reflect the most recent data from the Business and Peace 2024 report.)
Economic prosperity refers to a country’s economic growth, security, and competitiveness. Economic prosperity is important as it is a key element of quality of life and is also necessary for a country to be competitive in the global economy.
Economic prosperity and peace are often mutually reinforcing, according to the Business and Peace Report 2024 from the Institute for Economics & Peace (IEP).
Better economic performance assists in building peace and vice versa. Together, these elements can form a virtuous cycle. Similarly, worsening performance in levels of peace hinders economic growth, forming a vicious cycle. The economy and peace can therefore be thought of as a system that can move in either a beneficial or destructive direction.
All eight pillars of IEP’s Positive Peace framework are closely tied to the performance of private enterprise and the economy.
For example, the Free Flow of Information pillar is not only critical for an informed society, but also helps market integration due to greater availability of information on prevailing prices.
Free Flow of Information also helps to keep tariff levels low, which is crucial for the efficient allocation of inputs available to the economy.
Greater Acceptance of the Rights of Others, another pillar of Positive Peace, increases the economic participation of marginalised groups, in turn increasing their purchasing power.
Countries with very high levels of peace achieved, on average, over four times higher per capita gross domestic product (GDP) growth compared to the least peaceful countries between 1960 and 2022.
The chart below illustrates the growth gap between five groups of countries categorised by their level of peace.
Looking at just the past decade, countries with very high and high peace levels have demonstrated relatively strong GDP per capita growth, recording annual rates of 1.1 and 1.6 per cent, respectively, despite the major contraction in the global economy in 2020 owing to the COVID-19 pandemic. In contrast, nations with very low peace levels have experienced a notable decline, with an average annual GDP per capita of -0.93 per cent.
The trend analysis does not suggest causality between peace and economic progress but rather shows that peace and economic progress are interlinked.
The link between violence and economic prosperity is particularly evident when assessed through the relationship between per capita GDP and the GPI Safety and Security domain.
The correlation coefficient between the two variables is -0.65, representing a statistically robust relationship. This means that high levels of peace are statistically associated with greater levels of income. This relationship changes according to the different levels of income. Among high-income countries (those with a per capita gross national income of US$13,205 or more, the relationship is particularly robust.
Additionally, the absence of widespread violence and social disruptions allows for the efficient functioning of markets, leading to increased productivity and overall economic well-being.
The chart below illustrates the relationship between higher income per capita and increased levels of peace, which accelerate as countries progress toward higher levels of peace.
Low and stable inflation means that changes in the general level of prices are small and predictable, which reduces future uncertainty for investors.
Price instability has negative implications for economic activity through its effects on savings, investment and consumption.
Price volatility creates risks, reduces profitability and can lead to a concentration of savings in safer, but less-productive assets. It can also lead to contractionary monetary policies, including higher interest rates, which make it difficult for businesses, as well as consumers, to borrow and invest.
This chart shows the long-term trend in the inflation rate by levels of peacefulness.
Highly peaceful countries have been more effective in maintaining lower inflation and avoiding incidences of hyperinflation.
In the past two decades, the standard deviation of inflation, indicating the level of inflation volatility, has been between seven and 34 times higher in very low peace countries than in very high peace countries. In 2005, the standard deviation of inflation rates in very high peace countries was 1.4 per cent, contrasting with 9.9 per cent in very low peace countries. By 2021, this figure grew to 2.2 per cent in very high peace countries, while for very low peace countries, it surged to 74.9 per cent. Notably, in the post-COVID era, inflation has continued its upward trajectory, posing additional challenges to economic stability and resilience.
Interest rates are an important indicator of macroeconomic stability and are critical to economic success and investment certainty.
Correlation analysis illustrates that when peace deteriorates, interest rates also become more volatile and unpredictable.
This unpredictability arises from political uncertainties, perception of risk and higher inflation. A higher interest rate inhibits investment by both businesses and households, leading to a decline in economic activity.
Between 2000 and 2021, interest rates have decreased in very high peace countries. Conversely, in countries with lower peace levels, interest rates fluctuate significantly, displaying a high degree of volatility, as shown in the chart below. During the same period, the standard deviation of interest rates for countries with very low peace levels was nearly six times higher than in very high peace countries. The irregular nature of interest rate changes in lower peace countries reflects a degree of unpredictability and potential instability within their financial environments.
Foreign Direct Investment (FDI) is an important determinant of economic growth in developing countries. Empirical research has shown that FDI is not only a source of much-needed finances but also brings new technologies and managerial know-how.
Net FDI inflows, when measured as a percentage of GDP, exhibit a substantial discrepancy between countries with higher levels of peace and those with lower peace rankings. In highly peaceful countries, FDI inflows are markedly larger, often exceeding more than twice the proportions observed in less peaceful nations. This disparity underscores the attractiveness of highly peaceful countries to international investors, signalling a greater confidence in the economic stability, security, and growth potential of these regions. The higher FDI inflows in highly peaceful countries signify a stronger appeal and confidence from global investors in those nations’ economic environments.
Between 1980 and 2021, very high peace countries attracted greater FDI inflows as a percentage of GDP in most years, as shown in the chart below. From 1980 to 2021, FDI levels in very high peace countries increased approximately 20 times more than in very low peace countries.
In conclusion, the data clearly show that peace and economic prosperity are deeply intertwined. These mutually reinforcing dynamics highlight how crucial peace is for sustainable economic success and business confidence. The Business and Peace Report 2024 offer comprehensive insights and detailed analyses to better explore how peace and prosperity go hand in hand.
IEP has identified eight key factors, or Pillars, that comprise Positive Peace.
Benefit companies are a new legal form of business that contribute to local development and the common good in a transparent way.
Analysing the factors that sustain peace.
