ABSTRACT
The demise of Cold War and the collapse of the Soviet Union have raised new hopes for a stable world peace. This chapter argues that government should play a limited, but necessary role, where social investment is the most efficient way of enabling aggregate capital formation, and thus promoting economic growth at the national level. While Taiwan and South Korea serve as examples of economic miracles of the Cold War, China and North Korea may become the new success stories in the world of stable peace. However, the linkage between defense spending and economic expansion is not equally strong during peace and war periods. The global warming of political relationships will also have favorable economic fallouts for the developing nations. An economically backward country like Vietnam will benefit from the change in the political climate. The military rivalries between the East and the West are likely to be replaced by economic rivalries.
