Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/147379
Authors: 
Bluhm, Richard
Gassebner, Martin
Langlotz, Sarah
Schaudt, Paul
Year of Publication: 
2016
Series/Report no.: 
CESifo Working Paper 6125
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.
Subjects: 
conflict
foreign aid
political economy
dynamic ordered panel data
JEL: 
D74
F35
O11
C25
Document Type: 
Working Paper

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