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Foreign aid as counterterrorism policy

  • Subhayu Bandyopadhyay
  • Todd Sandler
  • Javed Younas

This paper presents a model where foreign aid bolsters a developing country's proactive counterterrorism efforts against a resident transnational terrorist group. In stage 1 of the game, the donor country allocates resources to terrorism-fighting tied aid, general assistance, and defensive actions at home. The recipient country then decides its proactive campaign against the common terrorist threat in stage 2, while the terrorists direct their attacks against the donor and recipient countries in stage 3. Terrorists' choices in the final stage provide a solid microfoundation for the terrorists' likelihood of success function. In stage 2, greater tied aid raises the recipient country's proactive measures and regime instability, while increased general aid reduces these proactive efforts and regime instability. In stage 1, a donor's homeland security decisions are interdependent with its aid package to a recipient country, hosting resident transnational terrorists. This interdependency and its implications have gone unrecognized to date. Copyright 2011 Oxford University Press 2010 All rights reserved, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/oep/gpq030
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Article provided by Oxford University Press in its journal Oxford Economic Papers.

Volume (Year): 63 (2011)
Issue (Month): 3 (July)
Pages: 423-447

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Handle: RePEc:oup:oxecpp:v:63:y:2011:i:3:p:423-447
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  1. Azam, Jean-Paul & Thelen, Véronique, 2007. "The Roles of Foreign Aid and Education in the War on Terror," IDEI Working Papers 449, Institut d'Économie Industrielle (IDEI), Toulouse.
  2. Subhayu Bandyopadhyay & Todd Sandler, 2011. "The Interplay Between Preemptive and Defensive Counterterrorism Measures: A Two‐stage Game," Economica, London School of Economics and Political Science, vol. 78(311), pages 546-564, 07.
  3. Khusrav Gaibulloev & Todd Sandler, 2008. "Growth Consequences of Terrorism in Western Europe," Kyklos, Wiley Blackwell, vol. 61(3), pages 411-424, 08.
  4. Konstantinos Drakos & Andreas Gofas, 2006. "In Search Of The Average Transnational Terrorist Attack Venue," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(2), pages 73-93.
  5. Alan B. Krueger & Jitka Maleckova, 2003. "Education, Poverty and Terrorism: Is There a Causal Connection?," Journal of Economic Perspectives, American Economic Association, vol. 17(4), pages 119-144, Fall.
  6. Sandler, Todd & Lapan, Harvey E., 1988. "The Calculus of Dissent: An Analysis of Terrorists' Choice of Targets," Staff General Research Papers 10818, Iowa State University, Department of Economics.
  7. Todd Sandler & Kevin Siqueira, 2006. "Global terrorism: deterrence versus pre-emption," Canadian Journal of Economics, Canadian Economics Association, vol. 39(4), pages 1370-1387, November.
  8. Azam, Jean-Paul & Delacroix, Alexandra, 2004. "Aid and the Delegated Fight against Terrorism," IDEI Working Papers 324, Institut d'Économie Industrielle (IDEI), Toulouse, revised Jul 2005.
  9. B. Curtis Eaton, 2004. "The elementary economics of social dilemmas," Canadian Journal of Economics, Canadian Economics Association, vol. 37(4), pages 805-829, November.
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