TY  - GEN
CY  - Heidelberg
AV  - public
T3  - Discussion Paper Series, University of Heidelberg, Department of Economics
Y1  - 2016/10//
TI  - Fueling Conflict? (De)Escalation and Bilateral Aid
KW  - conflict
KW  -  foreign aid
KW  -  political economy
KW  -  dynamic ordered panel data
ID  - heidok21941
EP  - 42
A1  - Bluhm, Richard
A1  - Gassebner, Martin
A1  - Langlotz, Sarah
A1  - Schaudt, Paul
UR  - https://archiv.ub.uni-heidelberg.de/volltextserver/21941/
N2  - 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.
ER  -