International Relations

Do Aid Shocks Cause Violent Conflict?

Sep 16 '10

Sudden and severe drops in foreign aid can significantly increase the probability of violent conflict and even civil wars. That is the conclusion of a new paper forthcoming in the American Journal of Political Science by Richard A. Nielsen, Michael G. Findley, Zachary S. Davis, Tara Candland, and Daniel L. Nielson. Especially during the Cold War, aid was often used to help governments stay in power by increasing their abilities to make resource transfers. Sudden negative shocks upset a government’s capacity to do this. The statistical analysis shows that this increases the probability of a new violent conflict.

The finding has important policy implications: aid shocks are manipulable. The paper suggests that if we would want to withdraw aid from a country, then we should do so gradually, not suddenly (which happened when concerns about Marxist rebels taking over countries seemed less threatening as the Cold War came to an end).

The authors use a comprehensive new dataset to estimate the impact of negative aid shocks and take into account the possibility that the relationship is a result of donor anticipation of conflict. This is observational data, so we can never be fully confident of the asserted causal relationship, but this is certainly a finding that needs to be taken seriously. A brief non-technical description of the paper is here. The abstract is below.

In this study we resolve part of the confusion over how foreign aid affects armed conflict. We argue that aid shocks – severe decreases in aid revenues – inadvertently shift the domestic balance of power and potentially induce violence. During aid shocks, potential rebels gain bargaining strength vis-à-vis the government. To appease the rebels, the government must promise future resource transfers, but the government has no incentive to continue its promised transfers if the aid shock proves to be temporary. With the government unable to credibly commit to future resource transfers, violence breaks out. Using AidData’s comprehensive dataset of bilateral and multilateral aid from 1981-2005, we evaluate the effects of foreign aid on violent armed conflict. In addition to rare-event logit analysis, we employ matching methods to account for the possibility that aid donors anticipate conflict. The results show that negative aid shocks significantly increase the probability of armed conflict onset.

h/t Mike Tierney.