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Does development aid increase military expenditure?

Author

Listed:
  • Langlotz, Sarah
  • Potrafke, Niklas

Abstract

Using a new instrumental variable strategy, we examine whether bilateral development aid increases military expenditure in recipient countries. The instrument is the interaction of donor government fractionalization and the probability of receiving aid. The dataset includes new data on military expenditure for 124 recipient countries over the 1975-2012 period. When accounting for outliers, our results do not suggest that development aid affects military expenditure in the full sample. However, the effect of aid on military expenditure varies across characteristics of recipient and donor countries, even after excluding outliers. First, aid increases military expenditure in countries that depend on aid and are prone to conflicts. Second, aid provided by coordinated market economies increases military expenditure.

Suggested Citation

  • Langlotz, Sarah & Potrafke, Niklas, 2019. "Does development aid increase military expenditure?," Munich Reprints in Economics 78251, University of Munich, Department of Economics.
    • Handle: RePEc:lmu:muenar:78251
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    Cited by:

    1. Cruzatti C., John & Dreher, Axel & Matzat, Johannes, 2023. "Chinese aid and health at the country and local level," World Development, Elsevier, vol. 167(C).
    2. Albalate, Daniel & Bel, Germà & Mazaira-Font, Ferran A. & Ros-Oton, Xavier, 2024. "Paying for protection: bilateral trade with an alliance leader and defense spending of minor partners," Journal of Economic Behavior & Organization, Elsevier, vol. 223(C), pages 234-247.
    3. Dreher, Axel & Lang, Valentin & Reinsberg, Bernhard, 2024. "Aid effectiveness and donor motives," World Development, Elsevier, vol. 176(C).
    4. Francesca G. Caselli & Andrea F. Presbitero, 2020. "Aid Effectiveness in Fragile States," Mo.Fi.R. Working Papers 158, Money and Finance Research group (Mo.Fi.R.) - Univ. Politecnica Marche - Dept. Economic and Social Sciences.
    5. Johannes Blum & Niklas Potrafke, 2020. "Does a Change of Government Influence Compliance with International Agreements? Empirical Evidence for the NATO Two Percent Target," Defence and Peace Economics, Taylor & Francis Journals, vol. 31(7), pages 743-761, October.
    6. Muhammad Athar Nadeem & Zhiying Liu & Haji Suleman Ali & Amna Younis & Muhammad Bilal & Yi Xu, 2020. "Innovation and Sustainable Development: Does Aid and Political Instability Impede Innovation?," SAGE Open, , vol. 10(4), pages 21582440209, November.
    7. Saba Charles Shaaba & Ngepah Nicholas, 2020. "Military expenditure and security outcome convergence in African regional economic communities: evidence from the convergence club algorithm," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 26(1), pages 1-28, February.
    8. Axel Dreher & Valentin F. Lang & Sebastian Ziaja, 2017. "Foreign Aid in Areas of Limited Statehood," CESifo Working Paper Series 6340, CESifo.
    9. Cohen, Isabelle, 2023. "Crowd in or crowd out? The subnational fiscal response to aid," World Development, Elsevier, vol. 164(C).
    10. Rune Jansen Hagen, 2025. "Can we define global collective action problems away?," Journal of International Development, John Wiley & Sons, Ltd., vol. 37(1), pages 107-128, January.

    More about this item

    JEL classification:

    • F35 - International Economics - - International Finance - - - Foreign Aid
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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