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Does Nation Building Spur Economic Growth?

Listed author(s):
  • Ellyn Creasey
  • Ahmed S. Rahman
  • Katherine A. Smith

type="main" xml:id="ecin12148-abs-0001"> Nation building, the allocation of economic aid conditional on military assistance in conflict and post-conflict environments, has cost the world trillions of dollars over the last half century. Yet few attempts have been made to quantify the potential economic growth effects for the recipient country from the provision of this aid. Using a 45-year panel dataset, we construct a measure of nation building using a three-way interaction term between military assistance, economic aid, and conflict regime. Considering that slow growing and problem-prone countries may be less likely to receive aid, we instrument for economic aid by estimating donor-to-donee aid flows in a first-stage procedure. Using this approach, we find that spending on nation building has positive growth effects during conflict periods, but that these effects disappear after conflict . ( JEL F3, F4, O5)

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File URL: http://hdl.handle.net/10.1111/ecin.2015.53.issue-1
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Article provided by Western Economic Association International in its journal Economic Inquiry.

Volume (Year): 53 (2015)
Issue (Month): 1 (01)
Pages: 660-680

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Handle: RePEc:bla:ecinqu:v:53:y:2015:i:1:p:660-680
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  1. William Easterly & Michael Kremer & Lant Pritchett & Lawrence H. Summers, 1993. "Good Policy or Good Luck? Country Growth Performance and Temporary Shocks," NBER Working Papers 4474, National Bureau of Economic Research, Inc.
  2. Caplan, B., 2002. "How does war shock the economy?," Journal of International Money and Finance, Elsevier, vol. 21(2), pages 145-162, April.
  3. Yamarik Steven J & Johnson Noel D & Compton Ryan A, 2010. "War! What Is It Good For? A Deep Determinants Analysis of the Cost of Interstate Conflict," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 16(1), pages 1-35, September.
  4. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
  5. Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1127-1170.
  6. Tseday Jemaneh Mekasha & Finn Tarp, 2011. "Aid and Growth What Meta-Analysis Reveals," WIDER Working Paper Series 022, World Institute for Development Economic Research (UNU-WIDER).
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