Table of Contents
Current state of research
Economic development and conflict
Foreign aid and conflcit
Justification for ADM1 level of precision
Measures of adaptability and receptivity
Research design and estimation framework
Descriptive statistics of the data
Research on the relationship between foreign aid and conflict has been focusing primarily on the country level of geographical aggregation. First of all, this approach disregards any geographical variation of the events and simply assumes that conflict as well as aid in a given year is evenly distributed across a given country. Secondly, it is susceptible to many problems stemming from limited number of units of analysis. Moreover, most of the topical scholarship attempts to establish the existence of a relationship in and of itself, without disaggregating by the type of donor and type of environment where aid flows to. The results of many studies show no clear consensus and often contradict each other. This work bridges the existing gap in literature by examining the relationship between foreign aid and the conflict intensity on a level of subnational administrative units (ADM1). The primary distinctive feature of this work is that aid projects are classified according to the developed and justified indices of donors’ adaptability and local environment’s receptivity. The data encompasses 5 African countries with the timeframe from 1998 to 2009 without gaps in coverage. An alternatively coded dataset which focuses on DRC with the timeframe of 1998 to 2014 is used for purposes of additional validity. In contrast to most other published research, the results indicate that there is no significant association between foreign aid and the level of conflict. Additionally, the hypotheses that the relationship is contingent on the adaptability and receptivity scores are also refuted. Disaggregating aid by fungibility also does not provide a significant link between aid and conflict. The implications of these findings are discussed, especially with respect to the contradictory findings in the existing literature. Measures and recommendations are devised both for future research avenues as well as for the broader audience, particularly for the actors responsible for international aid.
One of the most prominent global developments of the 20th century has been a rapid decline in both the absolute as well as relative to population size number of war casualties in the world. This trend has been especially strong since the end of World War 2. However, this dynamic has not been uniformly distributed, with some continents demonstrating much quicker rates of violence reduction than the others. For example, the number of annual war battle deaths in Europe and South East Asia has declined much more rapidly than those in Sub-Saharan Africa.
Almost simultaneously, the world has experienced another very important global economic phenomenon, which is the fact that over the past few decades, there has been a steep reduction of extreme poverty at an enormous scale. According to the World Bank, in the last two decades almost 1.1 billion people have been lifted out of poverty– from 1.85 billion people classified as living in poverty in 1990 to 767 million people in 2013. However, the distribution of this change over the globe has also been quite uneven: reduction in extreme poverty has mostly been driven by Asian countries, to the extent that today half of the people classified as living in conditions of extreme poverty are located in Sub-Saharan Africa. In addition to this, between 1946 and 2002 there have been at least 1.37 million battle-related deaths which occurred in 47 civil wars in Sub-Saharan Africa. Thus, evidence suggests that Sub-Saharan Africa remains the most conflict-ridden region of the contemporary world as well as the one that demonstrates the highest rates of poverty.
The countries affected by conflict are the ones which are the least likely to take part in the above-mentioned trend of poverty reduction. According to recent estimates by the World Bank, there are one and a half billion people who live in countries and regions affected by some type of conflict. These people have a higher rate of undernutrition and have little to no access to clean drinking water, lower access to public goods (e.g. education) and have higher rates of childhood mortality. If poverty and conflict are to be eradicated in such countries in any way, it is important not to think of these concepts as separate and non-overlapping issues but rather regard them as interconnected phenomena.
Governments and international organizations assign transfers of aid to regions suffering from poverty with the fundamental aim of improving the living conditions in such regions. This is perhaps one of the most prevalent mechanism that foreign actors can employ in order to alleviate the level of poverty in underdeveloped countries. While the widespread and commonly cited assessment of such transfers is that the actual effects match the intended goals, i.e. that foreign aid does indeed improve the living conditions in the regions where it is committed to, the factual answer to this question is far from being as clear-cut as it might seem.
Could it be that the effects of international aid commitments actually have negative consequences on the well-being of the people? An outburst of a local conflict almost inarguably leads to a decrease in quality of live for the general population of a country. While it could be that an influx of resources to a region does not achieve the intended outcomes, if the local environment is stable and peaceful, it is quite unlikely to measurably decrease the well-being of the inhabitants. However, should a region be politically unstable or already exhibit signs of conflict, this statement becomes much less unequivocal. Therefore, if an influx of foreign resources in a region brings about an increase in the level of conflict in that region, we would have to constitute that foreign aid not only does not achieve its intended purposes but also creates opposite and negative effects.
The current study address exactly this question: is there a significant relationship between international aid and conflict and what direction does this relationship take? Can aid measurably and quantifiably help to reduce the magnitude of conflict or not? And if the relationship proves to be not universal but rather variable, can we at least determine the factors that influence it in either way? A definitive answer to these questions would be of a great importance for actors and institutions of various backgrounds and agendas, from academia to actual aid donors. Having more knowledge and understanding of the factors that influence this relationship would immensely improve the decision-making ability of governments and international organizations. This would in turn lead to a much higher efficiency as well as efficacy of the resources allocation in foreign aid projects. Therefore, having this knowledge would mean that the intended goals of aid donors would be met much more accurately and that the probability of aid causing a decrease in the well-being of the general population would be significantly reduced. On the other hand, knowledge of the interdependence between aid and conflict as well as of the factors that might influence it is of great value for further academic scholarship. This understanding could serve as a robust starting point and a stepping stone towards further research and discoveries of the more detailed and intricate characteristics and qualities of this interrelationship.
While the link between international aid and the level of conflict has been studied before, a great majority of the published research has shared the same set of limitations. First of all, almost all studies focus on the country-year units of analysis. As will be discussed later on, such level of aggregation disregards all information on the subnational peculiarities and variation of aid and conflict events and thus can only capture the broadest patterns. Furthermore, the primary focus of the scholarship on this topic has been the link between foreign aid and conflict in and of itself, with no attempts made at dissecting the aid and conflict data any further.
What distinguished this work from other scholarship on similar topics is that here the relationship is studied on a finer degree of detail. Instead of working on a country level of aggregation, the relationship is modeled on a much more local and fine-grained level of administrative units of a country. Moreover, the present study employs a novelty approach, which attempts to link the differences in the relationships (sign and magnitude) between foreign aid and the level of conflict to the characteristics of the aid donors and of the local environments where aid projects actually take place. To the extent of author’s knowledge, such a disaggregative approach has not been undertaken before.
Current state of research
Economic development and conflict
There is little doubt that civil conflict and economic development are mutually related if not interdependent concepts. Conflicts often have fundamental economic incentives, even if it is not an immediate one (i.e. territory control, power grabbing, etc. all ultimately lead to increased economic gains for the winning warring parties). In their seminal research paper, Collier and Hoeffler study the interrelationship between civil conflict and several economic factors. The authors found that, among others, initial income of a region as well as the amount of natural resources are significant and strong determinants of the onset probability and the duration of civil wars, based on a data set on civil wars from 1816-1992 composed by Singer and Small. In another known study by Miguel et. al, the authors employed an instrumental variable approach and have discovered that there is a significant relationship between economic growth and civil conflict. The primary finding of that paper is that economic growth is strongly and negatively related to civil conflict, namely that a negative growth shock of five percentage points increases the likelihood of a conflict by one half in the following year, without major differences across other sociodemographic characteristics (wealth, level of democracy and ethnic diversity) of a country. Fearon further solidified the existence of a connection between the level of economic development and civil war as well as insurgency. While Fearon’s paper challenges the standard explanations of the association between poverty and civil war risk, it nevertheless supports the idea that higher income economies are less likely to exhibit conflict behaviors and civil wars. Moreover, there is evidence that presence of natural resources, which are of course directly tied to the level of economic development (at least potentially) of a country or a region, significantly influences the probability and extent of civil conflicts.  According to some findings, presence of oil, non-fuel minerals, and drugs are causally linked to the level of conflict. However, one has to mention that another equally rigorous study demonstrated results which indicate that an abundance of natural resources is actually associated with a reduced probability of the onset of a civil war. This finding is quite the opposite to the one that was discussed previously and might serve as a preliminary suggestion that we are likely to find some disagreements among the studies of foreign aid and civil conflict, which is actually the case as we will see later on.
The existence of a link between the level of economic development and the probability as well as the extent of civil conflict in a country might seem intuitive as it is, but the presence of this relationship is also very thoroughly grounded in the scientific literature. Therefore, changes to a country's economic situation are at least hypothetically likely to influence the respective changes in this country's patterns of civil conflict. International aid is a phenomenon that directly influences a country's (or that of a more local entity, such as a county) economic landscape by the fact that it represents an influx of new resources in a country. Therefore, by extension, foreign aid might have a clear and significant impact on that administrative unit's conflict environment. As already briefly mentioned, having a better understanding of the relationship between foreign aid and civil conflict would be very important for improving the way it is allocated. In turn, this would lead to a more effective way of lifting the countries out of poverty and as well as enable them to break free of the vicious circles of economic development fueled by the civil wars.
Foreign aid and conflcit
International aid, defined as a voluntary transfer of resources from one country (mediated by a government or international organizations) to another, is an established tool of international relations. The stated goals of such monetary transfers have a clear benevolent aim of reducing poverty, extending and improving infrastructure or any other humanitarian purposes. In general, the primary arguments in favor of allocating and distributing international aid depict it as an attempt at improving the basic economic and humanitarian conditions of a country and as a result foster its economic growth in the future. Since foreign financial aid directly influences the immediate economic situation of a country as well as, by extension, its level of economic development, it is quite logical that such financial transfers must have some effect on the level of conflict, given that there is an empirically established interdependence between the level of economic development and conflict. However, attempts of actually measuring the real effects of such foreign aid flows have proven to be quite difficult and deliver inharmonious discordant results.
Over the recent years there has been quite a lot of published research focusing on the relationship between foreign aid, economic growth and level of conflict in various countries. However, these numerous studies have come to very contrasting conclusions. Existing research on the relationship between aid and conflict yields rather contradictory findings. Some studies demonstrate that aid mitigates violence (i.e., achieves its intended purpose of increasing the general well-being of a region), with one possible causal mechanism being that aid strengthens the conflict-mitigating institutions of a country (macro-level) and another one being that it increases the opportunity cost of a person joining a rebellion (micro-level). At the same time, other studies indicate that aid exacerbates violence in part by indirectly financing the warring parties. Thus, the question whether foreign aid “works”, i.e. whether it attains the intended goals is far from being settled, as there are two directions, which are relatively equally supported by empirical evidence, that this relationship has been shown to take.
There are a couple of established points of view on the causal mechanisms that regulate the relationship between foreign aid and civil conflict. One common theoretical line of reasoning postulates that foreign aid does indeed help to lower the likelihood and intensity of a conflict. According to this point of view, the primary mechanisms with which foreign aid can have a significant lowering impact on the level of conflict are indirect economic influences. An often-cited mechanism is based on the idea that poverty (low per capita income and slow economic growth) and the risk of a civil war are empirically proven to be linked. Some of the explanations postulate that a lower income environment could make an individual’s choice of joining a rebel movement more attractive due to a lower opportunity cost (i.e. there is not much opportunity to earn income in a “conventional” way, which might increase the rebel recruitment rates) or, conversely, that people in a high income environment are more risk averse and therefore less likely to support and engage in a civil conflict.
If one works under the above-mentioned assumption that poverty does indeed increase the likelihood of a civil war, then in order to mitigate the extent of civil wars, one would need to address one of civil wars’ primary predictors – the level of poverty in a country. Various studies have linked improvement in the primary economic indicators of well-being in a country with a positive effect (in the sense of reducing the scale of violence) on the level of civil conflicts. For example, increasing the income per capita and economic growth as well as decreasing the dependence on primary commodity exports have been shown to be correlated with a decrease in the probability of a civil conflict onset in the future. In this view, foreign aid is argued to be a useful tool for preventing civil wars in the wake of negative economic shocks. Article by Fearon & Laiting further corroborates this perspective by establishing that a country’s sociodemographic factors (poverty, political instability, population size) have a significant measurable effect on the probability of a civil war. Therefore, there is evidence suggesting that foreign aid does in fact work towards reducing the level of conflict in the country of operation. However, these findings raise an important issue of the efficiency of aid’s allocation. Collier and Dollar argue that the currently employed mechanism of aid allocation is quite inefficient. Instead, the authors propose a different mechanism, which relies on optimizing the aid allocation to countries experiencing severe poverty rates but which have adequate policies. According to the authors’ calculations, this shift in aid allocation methodology would lift an additional 50 million people out of poverty, as compared to present types of allocation. By extension, we can argue that a more efficient mechanism of aid allocation would not only lead to a better poverty reduction but also result in less conflicts in the area of commitment. A discussion of donor behavior and its ramifications on the efficacy of aid allocation follows in a subsequent section.
However, one has to point out that causal mechanisms described above are far from being undisputed and are in fact somewhat speculative as there are studies which have found that some of the otherwise established causal mechanisms are either incoherent or incorrect, e.g. the already mentioned study be Fearon. Moreover, an interesting article by Djankov and Reynal-Querol, who investigate the relationship between poverty and civil war on a cross-country dataset, has come to the conclusion that the statistical association between poverty and civil wars disappears when accounted for the historical variables that jointly determine income evolution and conflict. Yet another study of the association between economic development and civil war in Liberia has demonstrated that civil war events predominantly happen in the relatively richer provinces, which is a completely opposite finding to the established theory that civil war is more likely to happen in impoverished regions. Thus, one has to exercise caution when working with the prevalent causal mechanisms in this line of reasoning, because while they do seem logically plausible and they are somewhat established in the scientific literature, there also is empirical evidence that points to the fact that the existence of the relationship might be an artefact of an omitted variable or that the sign of the association is actually reversed.
The alternative point of view on the underlying mechanism of the relationship between foreign aid and civil conflict is quite opposite to the one that was discussed above. Here, some studies have demonstrated that development aid can actually have a harmful association with conflict. The established line of reasoning for this causal mechanism is that international aid presents an influx of resources into a country or a region and that this fact may in one way or another incentivize the warring parties to engage in more conflict in order to claim these new resources. More specifically, the two most-cited causal mechanisms which link an influx of international aid to the level of conflict in a country or a region are, firstly, the idea that aid increases the prize and incentive associated with taking over the control of the state (or of a state’s region) and secondly, the proposition that capturing the aid resources constitutes an increase in the capacity of the warring parties (e.g. rebels) and thus allows them to finance either their direct military actions or support their their operations in form of food, supplies, etc. Fiona Terry examines several cases of civil wars in order to address the question of whether there are condition under which aid organizations should consider ceasing their operations and withdrawing their presence from a conflict site. She demonstrated that in some cases, humanitarian aid did in fact provide advantages to certain warring parties in a conflict. This would lead us to believe that there is merit to the argument that aid can increase the stimulus for the conflict parties to fight for the redistribution of the new resources.
The common assumption is that aid flows constitute a transfer of valuable and attractive lootable resources to the government, which gives the rebelling factions incentives to capture it for their needs. In this way, international aid might actually lead to an increase in the probability of conflict, as argued in the respective study by Grossmann. Along with it, Nunn and Qian show that the recipients of aid need not be the government as well as that the form of the aid is not limited to monetary transfers for this type of relationship to take place. Moreover, a rapid change in the quantity and quality of aid can also lead to a measurable impact on the likelihood of conflict onset, since it presents a significant change to the power distribution and status quo in a country. Yet another study came to the conclusion that an influx in foreign aid is actually negatively associated with the human development index in conflict-affected countries, which suggests that aid in these cases actually works against its intended purposes.
One reason that the findings regarding the relationship between aid and conflict are quite often contradictory lies in the fact that most of the relevant scholarship studies this phenomenon on the national level, i.e. considering the whole country as a single geographical unit of analysis. While this may be a reasonable level of detail for studying the most general patterns of this interdependence and data availability certainly plays a role in determining the degree of a study’s scope and precision, such broad level of aggregation disregards all of the information regarding the variability between the regions of a country and their specific qualities that might be of interest for determining the sign and the magnitude of the aid-conflict relationship. It is quite plausible that the effect of foreign aid on the level of conflict varies significantly between the regions of a country, since those regions are quite often very diverse in multiple respects. This regional diversity is very likely to affect the way aid influences the local economic environment and consequently the level of conflict in a region. Moreover, such an approach discards all of the information on the intricate variation in the donors–conflict actors interplay at the subnational (regional) level. A thorough discussion of the necessity of regarding the aid-conflict dynamics on a subnational level follows in the next section.
One has to point out an important distinction between the likelihood of a conflict’s onset and a conflict’s continuation. Some researchers have come to a conclusion that a set of explanatory variables can serve as an effective predictor for the likelihood of a conflict’s continuation while at the same time being insignificant for determining the probability of a conflict’s onset or vice versa. Such was the conclusion of de Ree & Nillesen 2009, who have indeed found a negative effect of foreign aid flows on the probability of ongoing civil conflicts’ continuation, whereas there was no a significant relationship between aid flows and the probability of a conflict’s onset.
There has been some research into difference between predictors or correlates of onset and continuation of civil wars with some rather interesting findings. For example, one study examined the hypothesis that the factors associated with the continuation of war might be quite similar to those associated with its onset, the null hypothesis being that variables affect both the onset and continuation probabilities. Having acknowledged the limitations that arise from the fact that the amount of observations which would be helpful in supporting or rejecting the initial hypothesis is quite sparse, the authors nevertheless came to a conclusion that while some variables indeed demonstrate similar effects for both conflict’s onset and continuation, there still are some differences in the power of certain explanatory variables for predicting the probability of a conflict’s onset vs. continuation. Thus, it seems that there is merit to the idea of treating the onset and continuation of a civil conflict as separate events.
Another interesting and pertinent point to consider is whether the type and nature of aid has any influence on the effects that such aid might have on the level of conflict in a country or a region. International aid is, of course, not a single uniform phenomenon but rather an umbrella term for a variety of projects and undertakings of different scopes and, importantly, types. While fundamentally all foreign aid constitutes an influx of resources from into a country from foreign agents, these resources are, first of all, of different kinds (e.g. money, goods, intangible goods and services, etc.) and are aimed at different purposes (for example, food aid, sanitation projects, government help). The expectation that the effect of aid on the local environment (and with that on the level of conflict in the region) would depend on the type of aid in question seems to be logical and quite plausible. Moreover, some scholars study the relationship between foreign aid and conflict specifically disaggregated by the type of aid. For example, it has been found that an increase in US food aid (the authors claim that the biggest component disaggregated humanitarian aid is in fact food aid) increases the incidence and the duration of civil conflicts. Another study concludes that democratizing countries that receive high levels of democracy aid are less likely to experience civil conflict than those that receive little or no democracy aid. An influx in U.S. military aid has been found to lead to an increase in the rate of homicides in Colombia.
These findings are interesting in that they corroborate the hypothesis that different types of foreign aid can have various (in some cases opposite) effects on the level of conflict in the country that they take place in. The distinction between the types of foreign aid that is perhaps most pertinent to the study of aid and conflict interrelationship is the idea of aid’s fungibility. By definition, fungibility is the property of a good or a commodity whose individual units are essentially interchangeable. In the context of foreign aid the concept of fungibility represents the degree to which an influx of resources can be used for purposes other than those intended by the aid donors. Findley also suggests that the fungibility of aid likely has a mediating effect on whether aid increases or decreases violence, as fungible aid may create incentives for the conflict parties which are distinct from those of non-fungible aid.
However, the degree of aid’s fungibility is not an immediately apparent characteristic, especially so considering the fact that aid projects are usually coded in rather broad thematic focus categories. Modern scholarship usually refers to the article by Feyzioglu et al. as a reference point when determining aid’s fungibility. By examining the relationship between foreign aid and changes in government spending, the authors came to the conclusion that foreign aid intended for agriculture, education, and energy sectors is fungible while money designated for transport and communication sectors is indeed spent on the purposes intended by the donors. A study of a different set of foreign aid thematic focuses came to conclusion that aid in the education and health sectors does not appear to be fungible. A study of aid fungibility in Sub-Saharan Africa concludes that there is a broad pattern of aid fungibility across all of the considered countries, while not explicitely specifying the focus sectors of international aid that are most prone to fungibility. U.S. military aid has been found to be almost perfectly fungible, with nonmilitary assistance demosntrating a lower degree of fungibility. A general conclusion can be drawn that foreign aid does demonstrate a certain extent of fungibility, however there is no clear-cut consensus as to what specific sectors of aid exhibit a higher or lower degree of fungibility.
Having the above considerations in mind, it is important to point out that aid fungibility could in fact affect conflict by inadvertently increasing the military resources available to the warring parties (by converting aid resources to military purposes), as was found by Addison and Murshed. A finding by Collier states that up to 40% of African military expenditures come from fungible foreign aid. We see that the degree of aid's fungibility does indeed influence the type of consequences that such aid may bring about. The initial idea of the current work regarding aid’s fungibility is that an influx of fungible aid could be a more attractive target for the warring parties to fight for and would thus be more likely to result in an increased level of conflict in the region. A government which is a recipient of fungible aid can easily convert this influx of aid into resources which are most needed for increasing its military capability. However, this also pertains to the non-governmental warring parties (e.g. the rebels), since it is easier also for the rebels to make use of the fungible aid towards fueling their conflict-related needs as such resources are more liquid in that they are more easily convertible to the type of resources that the rebels might require for their needs.
Justification for ADM1 level of precision
The most prevalent level of aggregation used in the studies that examine and attempt to quantify the extent and causes of conflict, in particular the relationship between international aid flows and the magnitude of civil war, is the annual country-level data. This approach is somewhat problematic from a number of perspectives. First of all, considering conflict and aid on the level of countries as a whole disregards all of the geographical variation of the events and simply assumes that conflict as well as aid in a given year is evenly distributed across a given country. This, of course, is not the case, as aid projects usually have a specific purpose (thematic focus) and the funds are committed to a specific geographically bounded entity. Assuming that conflict events are evenly distributed across a country is also quite erroneous. For instance, most intrastate conflicts take place on the peripheries of a country. Usually there is a direct relationship between the distance to the capital and the magnitude of intrastate conflict, i.e. the closer a region is to the capital, the less likely it is to experience conflict. Moreover, it is important to point out that the usual predictors of an intrastate conflict are also not uniformly distributed across a geographical entity. There is convincing evidence that links the probability of conflict onset and intensity of a conflict with the degree of local population clustering, exacerbated by the distance to the capital. Of course, a country’s population is never uniformly distributed across a country and neither are other sociodemographic characteristics of a country.
Thus, one would expect to see the most conflict in the densely populated regions far away from the capital and conversely, sparsely populated regions in the vicinity of the capital are less likely to experience an intrastate conflict. Therefore, attempting to quantify and model a relationship between foreign aid allocations and the extent of intrastate conflicts based on a country-level aggregation of aid allocations and conflict intensity results in a complete disregard for the very diverse and important peculiarities as well as subnational differences in the prevalence of conflict predictors that have been proven to have a significant effect. This does not only pertain to population size, of course, but rather to most qualities of interest – it is very rare for a country to exhibit a uniform distribution of anything. A high-level aggregation could lead a researcher to not being able to find a country-level association due to all of the regional effects canceling each other out. Alternatively, should a significant association be found, a researcher would not be able to know its regional variability, which might very well be quite high.
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