Fueling conflict? (De)escalation and bilateral aid
Jul 30, 2020
Richard Bluhm, Martin Gassebner, Sarah Langlotz, Paul Schaudt
Journal of Applied Econometrics
Bluhm, R, Gassebner, M, Langlotz, S, Schaudt, P. Fueling conflict? (De)escalation and bilateral aid. J Appl Econ. 2021; 36: 244– 261. https://doi.org/10.1002/jae.2797
Note: A version of this article was previously published as an AidData Working Paper.
This paper studies the effects of bilateral foreign aid on conflict escalation and deescalation. First, we develop a new ordinal measure capturing the two-sided and multifaceted nature of conflict. Second, we propose a dynamic ordered probit estimator that allows for unobserved heterogeneity and corrects for endogeneity. Third, we identify the causal effect of foreign aid on conflict by predicting bilateral aid flows based on electoral outcomes of donor countries which are exogenous to recipients. Receiving bilateral aid raises the chances of escalating from small conflict to armed conflict, but we find little evidence that aid ignites conflict in truly peaceful countries.