Fueling conflict? (De)escalation and bilateral aid

Abstract

Summary This paper studies the effects of bilateral foreign aid on conflict escalation and deescalation. First, we develop a new ordinal measure capturing the two‐sided and multifaceted nature of conflict. Second, we propose a dynamic ordered probit estimator that allows for unobserved heterogeneity and corrects for endogeneity. Third, we identify the causal effect of foreign aid on conflict by predicting bilateral aid flows based on electoral outcomes of donor countries which are exogenous to recipients. Receiving bilateral aid raises the chances of escalating from small conflict to armed conflict, but we find little evidence that aid ignites conflict in truly peaceful countries.

The effects of foreign aid on refugee flows

“…Turning to our results for conflict (panel B) and human rights (panel C), we do not observe significant effects. This is in line with some parts of the previous literature (de Ree and Nillesen 2009, Dreher and Gehring 2012, Ahmed and Werker 2015, Bluhm et al 2016, but not others (Crost et al 2014, Nunn andQian 2014). 36 We also provide suggestive evidence on the effects of aid on policy.…”

“…There is no robust evidence on whether or not aid affects economic growth (Doucouliagos and Paldam 2008, Werker et al 2009, Dreher and Langlotz 2017, Galiani et al 2017, economic and political freedom (Dreher and Gehring 2012), or trade (Cadot et al 2014). 12 When aid fails to promote development, or even hurts development either directly or via its adverse effects on democracy, institutions, conflict, the terms of trade, and income inequality (Bjørnskov 2010, Rajan and Subramanian 2011, Clemens 2014, Nunn and Qian 2014, Ahmed 2016, Bluhm et al 2016, refugee flows may even increase. Even if development aid improves the well-being of the recipient population, the aggregate effect on refugee flows is unclear.…”

Aid and growth: New evidence using an excludable instrument

“…All of these questions face the problem of endogeneity between aid and the variable of interest. Our instrument is well suited to address this problem, as has been demonstrated in Bluhm et al (2020) for conflict, Ziaja (2017) for democracy, Doucouliagos et al (2019) for infant mortality and Dreher et al (2019) for refugees. In providing an instrumental variable that is suitable to address the endogeneity of aid in a broad setting of questions, we hope to contribute in providing a more nuanced understanding of the various causal effects the aid might have.…”

“…in Ziaja (2017) in the context of democracy, Bluhm et al (2020) on conflict, Doucouliagos et al (2019) on infant mortality or Dreher et al (2019) on refugee flows. 4 We suggest a number of additional research questions where we think our instrument helps overcoming the endogeneity of aid in the conclusion.…”

Foreign Influence and Domestic Policy

“…Nunn and Qian (2014) exploit a combination of exogenous variations in US food aid shipments caused by weather-related shocks to the US wheat production and the recipient country's general tendency to receive US food aid to show that such aid causes an increase in the duration of civil wars, but has no effect on civil war onset. Bluhm, Gassebner, Langlotz, and Schaudt (2016) argue that the (unintended) effect of development aid on conflict depends critically on the preexisting levels of conflict. They create a new ordinal measure of conflict with four "grades of conflict", including low intensity conflicts, which have previously been neglected by the literature.…”