From a historical perspective there's been shockingly little conquest in the past 50 years. Almost all redrawing of borders have been a result of internal struggles, and only a tiny amount of soil has changed hands as a result of invading armies seizing territory.

There've still been civil wars, coups, proxy wars, trade wars, foreign-funded revolutions, etc, but these are way smaller scale and result in far less bloodshed than building up a massive army and smashing it against an enemy in an open war of conquest.

Interesting dynamics for a game like Civ.

It is also a lot harder to model these sorts of dynamics and make for a compelling game, IMO. An interesting idea of an "economic rts" type game is Offworld Trading Company(incidentally the brainchild of the Civ4 creator). I think they strike the right balance for their type of game, but I'm not sure it could be done for a more deliberate, Paradox-style strategy game.

It would be very interesting to have a political simulator where the internal population of the country is divided into factions, ethnic groups, and subcultures that differ on one of several dozen identity dimensions, and your goal is to lead the country and hold it together. If you screw up and deviate too farm from the centerline, either an opponent leader takes over and you have to rebuild your powerbase, or the country splits up in civil war. If it does split up and enter civil war, then the geography becomes very important and you need to hold territories (and their inhabitants) containing military bases, industrial production, and natural resources.

I think Democracy 3 [1] covers the first half of your description.

[1] http://www.positech.co.uk/democracy3/