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Fueling Conflict? (De)Escalation and Bilateral Aid

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

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Abstract

This paper studies the effects of bilateral foreign aid on conflict escalation and de-escalation. We make three major contributions. First, we combine data on civil wars with data on low level conflicts in a new ordinal measure capturing the two-sided and multifaceted nature of conflict. Second, we develop a novel empirical framework. 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 that are exogenous to recipients. We establish that the effect of foreign aid on the various transition probabilities is heterogeneous and can be substantial. Receiving bilateral aid raises the chances of escalating from small conflict to armed conflict, but we find no evidence that aid ignites conflict in truly peaceful countries.

Item Type: Working paper
Series Name: Discussion Paper Series, University of Heidelberg, Department of Economics
Volume: 0619
Place of Publication: Heidelberg
Date Deposited: 07 Oct 2016 09:36
Date: October 2016
Number of Pages: 42
Faculties / Institutes: The Faculty of Economics and Social Studies > Alfred-Weber-Institut for Economics
Subjects: 330 Economics
Uncontrolled Keywords: conflict, foreign aid, political economy, dynamic ordered panel data
Schriftenreihe ID: Discussion Paper Series / University of Heidelberg, Department of Economics
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