Foreign Aid and Conflict in Pakistan: An Empirical Analysis (original) (raw)

Does Aid Work in Conflict? An Empirical Analysis of Pakistan

Proceedings of the Proceedings of the 5th International Conference on New Ideas in Management, Economics and Accounting, 2018

The effectiveness of aid, among many factors, depends upon the prevailing law and order situation in the recipient economy. Despite receiving relatively large aid inflows, the economy of Pakistan has not performed well and aid effectiveness is often subject to debate. This study has analyzed the role of conflict in explaining economic growth process and aid effectiveness in case of Pakistan, I have constructed conflict index to gauge the role of conflict in Pakistan economy. By using Generalized Method of Moments (GMM) technique and fully modified OLS, the results establish negative association between aid and economic growth in Pakistan. Moreover, through construction of aid-conflict interactive term, it has been established that aid provision in presence of conflict remains ineffectual. Furthermore, results have highlighted that aid made its way to finance arms imports in Pakistan to fight terrorism. This study suggests that Pakistan cannot avail gains from aid without elimination of conflict.

Aid Conflict and Human Development in Pakistan

2021

Does aid cause conflict or promote human development? Pakistan has been a major aid recipient as a strategic US ally since the cold war. Growth followed but with increasing inequalities and social tensions. Soviet-Afghan war brought arms and drugs culture. War on terrorism has produced ethnic and religious fractionalization. The relationship between aid, conflict and human development suffers from reverse moral hazard. On the basis of multinomial log it regression, we conclude that donors’ pursuit of strategic agenda creates conflict and low human development. Donors demand diligence and impose conditions to win cooperation and trust, while the recipient struggles with the after effects of aid shocks and waits for more aid to undertake expensive reforms.

Calamity, Conflict and Cash Transfers: How Violence Affects Access to Aid in Pakistan

I examine how prior exposure to conflict affected household-level access to cash transfer programmes in the aftermath of the massive 2010 floods in Pakistan. Using IV-estimation to correct for the endogeneity of conflict exposure and access to aid, I find that conflict reduced household access to two large government-run cash transfer programmes – the Citizens Damage Compensation Programme (CDCP) – I, and the Benazir Income Support Programme (BISP). Distinguishing violence from rebel control, and exploiting the Taliban's avowed opposition to girls' schooling and their ability to reduce female primary enrolment, I attempt to identify areas likely to be under Taliban influence, which are otherwise unobserved across data sources. Using residuals derived from the community-level estimation of female primary enrolment rates (after including a wide range of supply and demand side determinants of girls' school enrolment), I mark out areas with more/ less likely Taliban presence. I find that the presence of Taliban and affiliate groups drives the negative effect of conflict on access to cash transfers. This suggests that attempts by the state to expand its footprint in rebel-held areas through social protection may be resisted by rebel groups, resulting in lower programme coverage. The lower access to the transfers in conflict-affected areas translates as the complete exclusion of villages from the programmes, as well as lower average rates of intra-village coverage.

Foreign aid shocks as a cause of violent armed conflict

American Journal of …, 2010

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 to 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.

The Role of Political Regimes in the Macroeconomic Effectiveness of Foreign Aid in Pakistan

This study is an attempt to analyze the role of political regimes in the effectiveness of foreign aid. In particular, we focus on the role of foreign aid in economic growth under democratic regimes. The empirical exercise is based on time-series data of the Pakistan economy over the period 1972–2011. To meet the objective of the study, an interactive term of democratic regime and foreign aid is used as a regressor in the growth equation. Our findings show that democratic regimes are harmful in the effectiveness of foreign aid as far as the economic growth of Pakistan is concerned. Moreover, the study suggests diminishing returns to scale of foreign aid as the assumption of a linear relationship between foreign aid and economic growth is relaxed. The other control variables such as physical capital and human capital enter the model in a significant way and with their expected signs in both the short and the long run.

The Political Economy of US Aid to Pakistan

Review of Development Economics, 2006

Variations of bilateral aid flows are difficult to explain on the basis of official development objectives or recipient need. Based on the example of US aid to Pakistan, this paper suggests alternative political economic explanations, notably the relevance of ethnic lobbying and the relevance of US business interests. Time series regressions for the period from 1980 to 2002 and logistic regressions based on votes for the Pressler and the Brown Amendment confirm the significance of these political economic determinants.While in case of the Pressler Amendment, the direct influence of population groups of Indian and Pakistani origins seems to have played a predominant role, the role of ethnic business lobbies appears to have dominated in the context of the Brown Amendment. Time series analysis also provides some evidence for the impact of US business interests based on FDI and exports, but these effects appear to be comparatively small.