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Does Nation Building Spur Economic Growth?

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  • Ellyn Creasey
  • Ahmed S. Rahman
  • Katherine A. Smith

Abstract

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)

Suggested Citation

  • Ellyn Creasey & Ahmed S. Rahman & Katherine A. Smith, 2015. "Does Nation Building Spur Economic Growth?," Economic Inquiry, Western Economic Association International, vol. 53(1), pages 660-680, January.
  • Handle: RePEc:bla:ecinqu:v:53:y:2015:i:1:p:660-680
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    File URL: http://hdl.handle.net/10.1111/ecin.2015.53.issue-1
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    References listed on IDEAS

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    1. Easterly, William & Kremer, Michael & Pritchett, Lant & Summers, Lawrence H., 1993. "Good policy or good luck?: Country growth performance and temporary shocks," Journal of Monetary Economics, Elsevier, vol. 32(3), pages 459-483, December.
    2. Collier, Paul & Dollar, David, 2002. "Aid allocation and poverty reduction," European Economic Review, Elsevier, vol. 46(8), pages 1475-1500, September.
    3. Kosuke Imai & Jeremy Weinstein, 2000. "Measuring the Economic Impact of Civil War," CID Working Papers 51A, Center for International Development at Harvard University.
    4. 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.
    5. Caplan, B., 2002. "How does war shock the economy?," Journal of International Money and Finance, Elsevier, vol. 21(2), pages 145-162, April.
    6. Tseday Jemaneh Mekasha & Finn Tarp, 2013. "Aid and Growth: What Meta-Analysis Reveals," Journal of Development Studies, Taylor & Francis Journals, vol. 49(4), pages 564-583, April.
    7. Nazrul Islam, 1995. "Growth Empirics: A Panel Data Approach," The Quarterly Journal of Economics, Oxford University Press, vol. 110(4), pages 1127-1170.
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    Cited by:

    1. Axel Dreher & Vera Eichenauer & Kai Gehring, 2013. "Geopolitics, Aid and Growth," CESifo Working Paper Series 4299, CESifo Group Munich.
    2. Alexander F. McQuoid & J. Britton Haynes Jr., 2017. "The Thin (Red) Blue Line: Police Militarization and Violent Crime," Departmental Working Papers 56, United States Naval Academy Department of Economics.
    3. Dutta, Nabamita & Williamson, Claudia R., 2016. "Aiding economic freedom: Exploring the role of political institutions," European Journal of Political Economy, Elsevier, vol. 45(S), pages 24-38.
    4. Michael Insler & Bryce McMurrey & Alexander F. McQuoid, 2016. "From Broken Windows to Broken Bonds: Militarized Police and Social Fragmentation," Departmental Working Papers 53, United States Naval Academy Department of Economics.

    More about this item

    JEL classification:

    • F3 - International Economics - - International Finance
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O5 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies

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