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Fueling Conflict? (De)Escalation and Bilateral Aid

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  • Gassebner, Martin
  • Bluhm, Richard
  • Langlotz, Sarah
  • Schaudt, Paul

Abstract

Civil conflicts undergo cycles of escalation. Beginning with riots, purges, and other violent acts of aggression, they escalate further and often culminate in outright civil war. This paper studies the effects of foreign aid on the escalation and de-escalation of conflict. We make three major contributions. First, we combine data on civil wars with data on low level conflicts in a new ordinal measure that captures the two-sided nature of conflict. Second, we study the effect of development aid on escalation and de-escalation. This allows us to give a rich description of how conflicts evolve dynamically, and to highlight the different roles played by bilateral aid in these transitions. We stress that low level conflicts matter since they are a violent expression of discontent over the distribution of rents (including aid) or of repression by the state. Third, we employ a new instrumental variable, which we then use to predict bilateral aid of DAC donor countries to 125 recipient countries over the period of 1975 to 2010. This solves the endogeneity concerns which have so far plagued the aid-conflict relationship. Our results show that the effect of foreign aid on the various transition probabilities is heterogeneous and sometimes very large. For example, receiving bilateral aid raises the chances of escalating from peace to small conflict, and from small conflict to armed conflict, but does not affect the transition from peace to civil war. Our main findings are robust to different estimation methods, controls and measures of conflict or foreign aid.

Suggested Citation

  • Gassebner, Martin & Bluhm, Richard & Langlotz, Sarah & Schaudt, Paul, 2016. "Fueling Conflict? (De)Escalation and Bilateral Aid," VfS Annual Conference 2016 (Augsburg): Demographic Change 145755, Verein für Socialpolitik / German Economic Association.
  • Handle: RePEc:zbw:vfsc16:145755
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    2. Cruzatti C., John & Dreher, Axel & Matzat, Johannes, 2020. "Chinese Aid and Health at the Country and Local Level," CEPR Discussion Papers 14862, C.E.P.R. Discussion Papers.
    3. Axel Dreher & Sarah Langlotz, 2020. "Aid and growth: New evidence using an excludable instrument," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 53(3), pages 1162-1198, August.
    4. Toke S. Aidt & Facundo Albornoz & Esther Hauk, 2019. "Foreign in influence and domestic policy: A survey," Cambridge Working Papers in Economics 1928, Faculty of Economics, University of Cambridge.
    5. Dreher, Axel & Fuchs, Andreas & Langlotz, Sarah, 2019. "The effects of foreign aid on refugee flows," European Economic Review, Elsevier, vol. 112(C), pages 127-147.
    6. Andreas Fuchs & Hannes Öhler, 2021. "Does private aid follow the flag? An empirical analysis of humanitarian assistance," The World Economy, Wiley Blackwell, vol. 44(3), pages 671-705, March.
    7. Toke S. Aidt & Facundo Albornoz & Esther Hauk, 2021. "Foreign Influence and Domestic Policy," Journal of Economic Literature, American Economic Association, vol. 59(2), pages 426-487, June.
    8. Klaus Gründler & Tommy Krieger, 2018. "Machine Learning Indices, Political Institutions, and Economic Development," CESifo Working Paper Series 6930, CESifo.
    9. M. Christian Lehmann, 2020. "Aiding refugees, aiding peace?," Journal of Public Economic Theory, Association for Public Economic Theory, vol. 22(5), pages 1687-1704, September.
    10. Adam, Antonis & Tsarsitalidou, Sofia, 2020. "The effect of international development assistance (IDA) on conflict. A fuzzy regression discontinuity approach," MPRA Paper 101841, University Library of Munich, Germany.
    11. Axel Dreher & Valentin F. Lang & Sebastian Ziaja, 2017. "Foreign Aid in Areas of Limited Statehood," CESifo Working Paper Series 6340, CESifo.
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    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions

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