Abstract
Armed conflict, and to a lesser extent terrorism, have detrimental effect on economic and social development through destruction of human and physical capital and ensuing disruption to economic activity. There is also likely to be an indirect effect of political instability through its impact on foreign aid. The net effect is not obvious; violence may discourage aid donors and hence lead to a fall in received aid on the one hand, but it may well lead to an increase in foreign aid as donors offer reimbursement for counterterrorism efforts on the other hand. This paper uses a panel of countries to identify the net effect of armed conflict and terrorism, both domestic and international, on aid receipts. It shows that armed conflict has a negative effect on the amounts of both bilateral and multilateral aid. It also finds that terrorism tends to increase foreign assistance. The effect is stronger for bilateral aid; this is consistent with the expectation that they are likely to use foreign aid to directly or indirectly assist governments fighting terrorism. Nonetheless, these results do not hold for Muslim countries which do not receive increased aid when suffering from terrorism.
Acknowledgments
The author is grateful to Raul Caruso and an anonymous reviewer for their helpful comments and suggestions.
References
Alesina, A., Dollar, D., (2000), Who Gives Foreign Aid to Whom and Why?, Journal of Economic Growth, vol. 5, no. 1, pp. 33–63.Search in Google Scholar
Alesina, A., Devleeschauwer, A., Easterly, W., Kurlat, S., Wacziarg, R., (2003), Fractionalization, Journal of Economic Growth, vol. 8, no. 2, pp. 155–194.Search in Google Scholar
Azam, J.-P., Thelen, V., (2008), The Roles of Foreign Aid and Education in the War on Terror, Public Choice, vol. 2008, no. 135, pp. 375–397.Search in Google Scholar
Bandyopadhyay, S., Sandler, T., Younas, J., (2011), Foreign Aid as Counterterrorism Policy, Oxford Economic Papers, vol. 63, no. 3, pp. 423–447.Search in Google Scholar
Berman, E., Callen, M., Felter, J.H., Shapiro, J.N., (2011), Do Working Men Rebel? Insurgency and Unemployment in Afghanistan, Iraq, and the Philippines, Journal of Conflict Resolution, vol. 55, no. 4, pp. 496–528.Search in Google Scholar
Blomberg, S.B., Hess, G.D., Orphanides, A., (2004), The Macroeconomic Consequences of Terrorism, Journal of Monetary Economics, vol. 51, no. 5, pp. 1007–1032.Search in Google Scholar
Boehmer, C., Daube, M., (2013), The Curvilinear Effects of Economic Development on Domestic Terrorism, Peace Economics, Peace Science and Public Policy, vol. 19, no. 3, pp. 359–368.Search in Google Scholar
Boutton, A., Carter, D.B., (2014), Fair-Weather Allies? Terrorism and the Allocation of US Foreign Aid, Journal of Conflict Resolution, vol. 58, no. 7, pp. 1144–1173.Search in Google Scholar
Boyce, J.K., Pastor, Jr., M., (1998), Aid for Peace: Can International Financial Institutions Help Prevent Conflict?, World Policy Journal, vol. 15, no. 2, pp. 42–49.Search in Google Scholar
Bueno de Mesquita, B., (2005), The Quality of Terror, American Journal of Political Science, vol. 49, no. 3, pp. 515–530.Search in Google Scholar
Bueno De Mesquita, B., Smith, A., (2007), Foreign Aid and Policy Concessions, Journal of Conflict Resolution, vol. 51, no. 2, pp. 251–284.Search in Google Scholar
Burnside, C., Dollar, D., (2000), Aid, Policies, and Growth, American Economic Review, vol. 90, no. 4, pp. 847–868.Search in Google Scholar
Carter, D.B., Signorino, C.S., (2010), Back to the Future: Modeling Time Dependence in Binary Data, Political Analysis, vol. 18, no. 3, pp. 271–292.Search in Google Scholar
Caruso, R., Gavrilova, E., (2012), Youth Unemployment, Terrorism and Political Violence, Evidence from the Israeli/Palestinian Conflict, Peace Economics, Peace Science and Public Policy, vol. 18, no. 2, pp. 1554–8597.Search in Google Scholar
Caruso, R., Schneider, F., (2013), Brutality of Jihadist Terrorism. A Contest Theory Perspective and Empirical Evidence in the Period 2002–2010, Journal of Policy Modeling, vol. 35, no. 5, pp. 685–696.Search in Google Scholar
Chauvet, L., (2003), Socio-Political Instability and the Allocation of International Aid by Donors, European Journal of Political Economy, vol. 19, no. 1, pp. 33–59.Search in Google Scholar
Collier, P., (2006), War and Military Expenditure in Developing Countries and their Consequences for Development, Economics of Peace and Security Journal, vol. 1, no. 1, pp. 10–13.Search in Google Scholar
Enders, W., Sandler, T., Gaibulloev, K., (2011), Domestic Versus Transnational Terrorism: Data, Decomposition, and Dynamics, Journal of Peace Research, vol. 48, no. 3, pp.319–337.Search in Google Scholar
Freedom House (1972–2009), Freedom in the World Country Ratings, http://freedomhouse.org/.Search in Google Scholar
Gaibulloev, K., Sandler, T., (2009), The Impact of Terrorism and Conflicts on Growth in Asia, Economics & Politics, vol. 21, no. 3, pp. 359–383.Search in Google Scholar
Gleditsch, N.P., Wallensteen, P., Eriksson, M., Sollenberg, M., Strand, H., (2002), Armed Conflict 1946–2001: A New Dataset, Journal of Peace Research, vol. 39, no. 5, pp. 615–637.Search in Google Scholar
Heston, A., Summers, R., Aten, B., (2012), Penn World Table Version 7.1, Center for International Comparisons of Production, Income and Prices at the University of Pennsylvania, July 2012.Search in Google Scholar
Judson, R.A., Owen, A.L., (1999), Estimating Dynamic Panel Data Models: A Guide for Macroeconomists, Economics Letters, vol. 65, no. 1, pp.9–15.Search in Google Scholar
Lai, B., (2003), Examining the goals of US foreign assistance in the Post-Cold War period, 1991–1996, Journal of Peace Research, vol. 40, no. 1, pp. 103–128.Search in Google Scholar
Lis, P., (2011), Impact of Selected Historical Events on the Income-Based Distribution of Terrorism from the Rise of Fundamentalist Terrorism to the Iraq War1, International Studies Quarterly, vol. 55, no. 3, pp. 771–785.Search in Google Scholar
Lis, P., (2013), Armed Conflict, Terrorism, and the Allocation of Foreign Aid, Economics of Peace and Security Journal, vol. 8, no. 1, pp. 12–17.Search in Google Scholar
Mallaby, S., (2002), The Reluctant Imperialist: Terrorism, Failed States, and the Case for American Empire, Foreign Affairs, vol. 81, no. 2, pp. 2–7.Search in Google Scholar
Meierrieks, D., Gries, T., (2012), Economic Performance and Terrorist Activity in Latin America, Defence and Peace Economics, vol. 23, no. 5, pp. 447–470.Search in Google Scholar
Nielson, D.L., Powers, R.M., Tierney, M.J., (2010), Broad Trends in Foreign Aid: Insights from PLAID 1.9.1. Conference paper presented at Aid Transparency and Development Finance: Lessons and Insights from AidData, Oxford, U.K. 22–25 March 2010.Search in Google Scholar
Trumbull, W.N., Wall, H.J., (1994), Estimating Aid-Allocation Criteria with Panel Data, The Economic Journal, vol. 104, no. 425, pp. 876–882.Search in Google Scholar
© 2014 by De Gruyter
