Where the literature stands and where we should go from here
EITM Lecture – PART 2
July 8, 2011
Prof. Oeindrila Dube

• What are potential theoretical channels through which aid may affect conflict?

Aid
Economic benefits lower grievances/ raise opportunity cost of fighting
State stronger
More gains from predation
Leakage or mistargeting
Less conflict
Less conflict
More conflict
More conflict

• Selection
– Aid allocated toward good performers  upward bias
– Aid allocated toward “basket cases”  downward bias

Aiding Violence or Peace?
(De Ree and Nillesen, 2009)
• Does development aid affect likelihood of conflict?
– In Sub-Saharan Africa
• Empirical strategy:
– Instrument for aid flow using average donor country GDP
• Results
– Aid reduces the duration of conflict
– Aid has no significant effect on probability of conflict onset

Crost and Johnston (2010)

Overview
• Does participation in major community driven development program affect violence?
• Within country analysis
– Philippines, 2003-2008
• Regression discontinuity design
– Within each province poorest 25% of municipalities eligible for a major community driven development program
– Running variable: distance of poverty ranking from eligibility threshold

Qian and Nunn (2011)

• What is the effect of U.S. wheat aid on conflict?
– 121 recipient countries, over 1967 – 2004
• Empirical strategy
– Instrument U.S. wheat aid with weather in conditions in U.S. wheat producing regions
– Interact wheat aid with average probability country receives food aid

Second-stage
First-stage

2SLS estimates of the effect of U.S. Wheat Aid on the Probability of Conflict

• Increased value of the state
• Diversion of food aid to armed groups
• Alternative mechanism: price effects?

(Dube and Naidu, 2010)
• Rise in U.S. military found to increase paramilitary violence in Colombia
• Consistent with diversion since
– U.S. military aid goes to the Colombian military, which is stationed in regions with bases
– U.S. military aid leads to more attacks in base regions by paramilitary groups (aligned with the Colombian military)
– No equivalent increase in attacks by guerilla groups

Taking stock of the aid-conflict literature
• Mixed results
– Opposite effects of development aid within vs. across country
– Food and military aid found to increase conflict
• Little on understanding why
– Conflict reducing effects: opportunity cost vs. state capacity?
– Conflict promoting effects: diversion, prize, strategic reasons?
• Different effects based on aid type?
– Government, foreign govt./military, NGO disbursement
– Project vs. program aid

Several recent papers show null effects
• No effect of civil war on consumption, school enrollment or nutrition in Sierra Leone (Bellows and Miguel, 2006 and 2009)
– Higher participation in collective action and political participation
• No effect of bombings on long run poverty in Vietnam
(Miguel and Roland , 2010)

Compared to non-bombed areas, bombed areas did
NOT have lower…
• Local poverty rates
• Consumption levels
• Infrastructure
• Literacy
• Population density

Doesn’t necessarily imply war was economically inconsequential
• Compares districts within Vietnam
– National growth rate may have been faster in the absence of war
– Government investment/foreign aid could have gone to other, non-bombed regions
• Private foreign investment may have been greater if it were not a post-conflict country

• Event study methodology to show beneficial effects of conflict on firms
• Stock returns of partly nationalized corporations increased during covert coups (Dube, Kaplan and Naidu, forthcoming)
• Diamond company stock returns declined with end of
Angolan civil war (Guidolin and La Ferrara, 2008)

What “benefits” did war confer to diamond companies?
• Entry barriers for other diamond companies were higher
• Bargaining power of Angolan government lower
– Licensing and rent-seeking costs for incumbent firms lower
• Lower transparency standards permitted more profitable dealings

• Micro results point to interesting compositional effects
• Micro data may not enable us to capture net effects of conflict on economic performance
– Counterfactual hard to establish with cross-regional comparisons
– Firm event studies are essentially case studies

• Literature lacks an identified cross-country analysis of how conflict affects economic performance
– Large returns to having the first good instrument
• More interesting to show conditions under which there are positive and negative effects
– For within or cross-country analysis
– Particularly since micro studies show both effects possible

• Bellows, John and Ted Miguel. 2006. “War and Institutions: New Evidence from
Sierra Leone” African Economic Development 96(2).
• Bellows, John and Ted Miguel. 2006. “War Local Collective Action in Sierra Leone”
Journal of Public Economics, 2009, 93(11-12), 1144-1157
• Besley, Tim and Torsten Persson. 2010. “The Logic of Political Violence.” Quarterly
Journal of Economics.
• Collier, Paul and Anke Hoeffler. “Greed and Grievance in Civil Wars” Oxford
Economic Papers Oxford Economic Papers (2004): 563-595
• Collier and Anke Hoeffler, “On Economic Causes of Civil War,” October 1998, 50,
563–73.
• Collier, Paul and Anke Hoeffler “Greed and Grievance in CivilWar,” Oxford Economic
Papers, 2004, 56 (4), 563–95.
• Crost, Benjamin and Patrick Johnston. “Aid Under Fire: Development Projects and
Civil conflict.” Mimeo, Harvard Kennedy School.
• De Ree, Jopp and Eleonora Nillesen. 2009. “Aiding Violence or Peace? The Impact of foreign aid on the risk of conflict in Sub-Saharan Africa.” Journal of Development
Economics. 88: 301-313.
• Dube, Oeindrila and Juan Vargas. “Commodity Price Shocks and Civil Conflict:
Evidence from Colombia.” Mimeo, NYU.

• Dube, Oeindrila and Suresh Naidu. “Bases, Bullets and Ballots: the Impact of U.S.
Military Aid on Political Conflict in Colombia.” Mimeo, NYU.
• Fearon, James and David D. Laitin, “Ethnicity, Insurgency, and Civil War,” American
Political Science Review 2003, 97 (1), 75–90.
• Guidolin, M. and E. La Ferrara (2007), “Diamonds are forever, Wars are not. Is conflict bad for private firms?” American Economic Review, 97(5), 1978-93.
• Miguel, Ted, Shanker Satyanath and Ernest Sergenti . 2004. “Economic Shocks and
Civil Conflict: An Instrumental Variables Approach.” Journal of Political Economy.
112(4): 725-733.
• Miguel, Ted and Shanker Satyanath. Forthcoming. “Re-examining economic Shocks and Civil Conflict.” AEJ-Applied.
• Miguel, Ted and Gerard Roland. The Long Run Impact of Bombing Vietnam. Journal
of Development Economics (forthcoming).
• Qian, Nancy and Nathan Nunn. “ Feeding Conflict: the Unintended Consequences of Food Aid on Civil War.” Mimeo, Yale University.
• Yanagizawa-Drott, David, “Propaganda and Conflict: Theory and Evidence from the
Rwandan Genocide,” 2010. Working Paper, Harvard University.