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Fueling Conflict? (De)Escalation and Bilateral Aid

Author

Listed:
  • Bluhm, Richard
  • Gassebner, Martin
  • Langlotz, Sarah
  • Schaudt, Paul
Abstract
This paper studies the effects of bilateral foreign aid on conflict escalation and de-escalation. We make three major contributions. First, we combine data on civil wars with data on low level conflicts in a new ordinal measure capturing the two-sided and multifaceted nature of conflict. Second, we develop a novel empirical framework. 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 that are exogenous to recipients. We establish that the effect of foreign aid on the various transition probabilities is heterogeneous and can be substantial. Receiving bilateral aid raises the chances of escalating from small conflict to armed conflict, but we find no evidence that aid ignites conflict in truly peaceful countries.

Suggested Citation

  • Bluhm, Richard & Gassebner, Martin & Langlotz, Sarah & Schaudt, Paul, 2016. "Fueling Conflict? (De)Escalation and Bilateral Aid," Working Papers 0619, University of Heidelberg, Department of Economics.
    • Handle: RePEc:awi:wpaper:0619
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    22. Axel Dreher & Valentin F. Lang & Sebastian Ziaja, 2017. "Foreign Aid in Areas of Limited Statehood," CESifo Working Paper Series 6340, CESifo.
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    Keywords

    conflict; foreign aid; political economy; dynamic ordered panel data;
    All these keywords.

    JEL classification:

    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities

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