Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/162962
Authors: 
Bluhm, Richard
Gassebner, Martin
Langlotz, Sarah
Schaudt, Paul
Year of Publication: 
2016
Series/Report no.: 
Discussion Paper Series, University of Heidelberg, Department of Economics 619
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
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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