Foreign Aid Shocks as a Cause of Violent Armed Conflict

Abstract

In this study we resolve part of the confusion over how foreign aid affects armed conflict. We argue that aid shocks-severe decreases in aid revenues-inadvertently shift the domestic balance of power and potentially induce violence. During aid shocks, potential rebels gain bargaining strength vis-à-vis the government. To appease the rebels, the government must promise future resource transfers, but the government has no incentive to continue its promised transfers if the aid shock proves to be temporary. With the government unable to credibly commit to future resource transfers, violence breaks out. Using AidData's comprehensive dataset of bilateral and multilateral aid from 1981 to 2005, we evaluate the effects of foreign aid on violent armed conflict. In addition to rare-event logit analysis, we employ matching methods to account for the possibility that aid donors anticipate conflict. The results show that negative aid shocks significantly increase the probability of armed conflict onset.

States of Fragility 2016

“…decreases in aid) have been found to alter the domestic balance of power and induce violence (Nielsen et al, 2011).…”

Does aid cause conflict in Pakistan?

“…More aid to the governments can help in controlling domestic conflict. Findley et al (2011), Nielsen et al (2011 and Ree and Nillesen (2009) examine the relationship between aid and conflict. Based on these researches, one can conclude that significant increase in aid reduces conflict.…”

“…These authors (Azam and Delacroix 2006;Thelen 2008, 2010;Bapat 2011, Nielsen et al 2011Ree and Nillesen 2009;Young and Findley 2011) find a negative relationship between aid and transnational conflict and prescribe more aid as a means to reducing conflict. Thelen (2008, 2010) developed a model that aid is money given for protecting the economic and strategic interests of the donor, as Western democracies are the main target of the terrorists.…”

“…Collier and Hoeffler (2007) see another negative dimension of aid in that it triggers arms race as an unintended consequence. Nielsen et al (2011) view armed conflict as a consequence of aid shock. The other group of scholars views ODA as an instrument tailored to assist developing countries in mitigating poverty.…”

The Hearts and Minds in Conflict and Peace

“…For example, applying the classical military deterrence argument, Bazzi and Blattman (2014) propose that aid can deter rebellion by increasing the military capacity of the recipient governments. Focusing on aid withdrawal, Nielsen et al (2011) argue that aid withdrawal will weaken the military capacity of governments that have long been dependent on foreign assistance to buy peace from potential rebels. In another study, Savun and Tirone (2012) posit that aid can alleviate income shocks and hence prevents the occurrence of conflict by allowing recipient governments to distribute resources to potential rebels to pre-empt violent oppositions in times of severe economic downturns.…”