Paying Them to Hate US: The Effect of U.S. Military Aid on Anti-American Terrorism, 1968-2014

Does U.S. military aid make the United States safer? To answer this question, we collect data for 173 countries between 1968 and 2014. Exploiting quasi-random variation in the global patterns of U.S. military aid, we provide causal estimates of U.S. military aid on anti-American terrorism. We find that higher levels of military aid lead to an increased likelihood of the recipient country producing anti-American terrorism. This finding also holds when subjected to a battery of robustness checks (e.g., alternative instrumental variables, sub-sample analyses, examination of heterogeneous effects, placebo tests). For our preferred specification, at the sample mean doubling U.S. military aid increases the risk of anti-American terrorism by 4.4 percentage points, which in turn is approximately 30% of the sample mean. Examining potential transmission channels, we find that more U.S. military aid leads to more corruption and exclusionary policies in recipient countries. Consistent with a theoretical argument developed in this paper, these results indicate that the inflow of military aid induces rent-seeking behavior, which in turn encourages terrorism by groups that suffer from reduced economic and political participation as a consequence of rent-seeking. These groups in particular direct their dissatisfaction against the United States as the perceived linchpin of an unfavorable status quo in the recipient country.