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Foreign aid as counterterrorism policy

Author

Listed:
  • Subhayu Bandyopadhyay
  • Todd Sandler
  • Javed Younas

Abstract

We present a model where foreign aid bolsters proactive counterterrorism efforts of a foreign nation that is a source for transnational terrorism. Our two-stage game has the donor country choosing a first-stage contract consisting of terrorism-fighting tied aid and general assistance. In stage 2, the donor decides its defensive measures, while the recipient country chooses its proactive measures. An interesting finding is that the foreign enforcement best-response function is likely to reflect strategic substitutes, while the donor's enforcement best-response function is apt to indicate strategic complementarity. A rise in terrorism in the donor increases home enforcement but may limit foreign enforcement at given aid levels. A rich set of scenarios depends on the strategic identity of the countries' countermeasures and the recipient's regime stability. Surprising and varied outcomes follow.

Suggested Citation

  • Subhayu Bandyopadhyay & Todd Sandler & Javed Younas, 2009. "Foreign aid as counterterrorism policy," Working Papers 2009-021, Federal Reserve Bank of St. Louis.
    • Handle: RePEc:fip:fedlwp:2009-021
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    References listed on IDEAS

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    1. 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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    6. Jean-Paul Azam & Véronique Thelen, 2008. "The roles of foreign aid and education in the war on terror," Public Choice, Springer, vol. 135(3), pages 375-397, June.
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    Keywords

    Terrorism; War - Economic aspects;

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