Does Foreign Aid Perpetuate Terrorism?


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The purpose of this article is to analyze the strengths, weaknesses as well as the overall implications of five separate research studies on the subject of foreign aid and its relationship to politics development. The general tendency based on the research suggests that foreign aid has a negative relationship with development, that is, the more foreign aid a country receives, the less likely they are to enact the reforms conducive to development. While there are some exceptions. It is argued that countries with effective financial management that receive large sums foreign aid are likely to exhibit stability and at least some levels of development and redistribution.

The body of this paper will be separated into five sections in which I summarize the main points of each article as well as the potential weaknesses of the research. After this segment, I follow up with a section about the theoretical and policy implications of these findings, and what this could mean for the world today, as well as in the future.

In Moss, Peterson and Walle’s article, the hypothesis is that large sustained aid flows fundamentally alter the relationship between citizenry and the government. The financial flow alters the incentive of the recipient government, and may undercut the very principles the aid seeks to promote: ownership, accountability and participation. States that raise a substantial amount of revenue from the international community are less inclined to usher reform or to cultivate public institutions, having a harmful effect on institutional development. The focus of this research is specifically on Sub-Saharan Africa. As the author’s cross-sectional time series indicates, countries that receive higher levels of foreign aid exhibit lower tax shares as percent of their GDP, meaning there is less incentive to invest in and cultivate public institutions when a significant percentage of the GNI is received in foreign aid. In sum, the literature and research suggest a negative relationship between foreign aid and political development. Perhaps the greatest weakness of this research is that it covers only a period of 17 years, making it more difficult to make far-reaching conclusions regarding the data. Furthermore, the authors could control for natural resource endowment as well as cultural relativity by considering the same measurements for non-African states with lower incomes. It would also be interesting to measure the the effect of foreign aid on countries with high levels of income per capita, which could help further contextualize the data on lower income countries in Sub-Saharan Africa.

Svenssons’s research in “Foreign Aid and Rent-Seeking” is rather interesting as it makes strong claims. Among other findings, Svensson argues that donors countries do not discriminate based on corruption levels, which means that foreign aid is given despite how corrupt the recipient may be. Svensson also finds that only in cases where a binding policy commitment is enacted can there be expected to be an increase in public spending. However, the data indicates that in most cases foreign aid perpetuates rent-seeking and reduces public spending. Furthermore, the data suggests that countries with competing social groups are likely to exhibit fluctuations in foreign aid. The research method was rather reliable, in that intervening variables such as infant mortality rate and arms imports so as to isolate the effects of foreign aid from the health and military dynamics of the subject states. Svens son’s control for ethnicity exposed the relative weakness of the coefficients of other variables, such as trade restrictions and protection from the international community. Of the four assumptions listed by the author, two particularly stood out. First, the assumption that that the larger the budget, the more likely a government is going to be corrupt. Perhaps stretching the boundaries of this study outside of Africa might provide a clearer indication of this assumption. What about countries with vast natural resource endowments? Are they less more or less likely to exhibit corruption? The second assumption that stood out was that donors at least partly care about the recipient’s welfare. The author suggests that much of the literature on this subject confirms the statement, however, I find it hard to believe that global hegemonies are more concerned with well-being of their recipients of foreign aid than perhaps the preservation of their own economic assets. Is it not surprising that countries which receive high levels of aid invest less in public institutions? Would this not be at the detriment of the recipient? That countries with tensions between social groups are likely to receive large swaths of foreign aid confirms this notion, in that global hegemonies are likely to provide aid if it secures their interests and prevents the threat of competing forces. How could this be regarded as “caring about the recipient’s welfare?” This leads directly into the next article.

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In their article “Aid, Policies & Growth”, the Burns & Dollar suggest foreign aid is often wielded as a tool for global hegemonies pursuing their own strategic interests. In other words, governments may receive aid — but not necessarily their people. Since the vast majority of countries that receive aid are underdeveloped or engulfed in conflict between competing social groups, the authors’ findings and assertions come as no surprise. How could it be assumed that donors care about their recipient’s well-being if the recipient state constantly receiving foreign aid is essentially in the hands of a small, political elite?  The research method is rather reliable as it includes a large sample size of 56 developing countries as well as wide-ranging time series covering two decades between 1970-1993. In terms of policy, the authors find that foreign aid has no effect in ensuring policy change, usually due to the donor’s lack of interest in policy-change. Rather, the donor is focused on its strategic interests. The positive outcome of foreign aid has been in the realm of income growth. How is it possible that state policy remains unaffected while incomes rise? Perhaps a common thread among the recipient states is a lack of natural resource endowment, making them more dependent on foreign aid. What could be said about the universality of democratic political development given that incomes rise despite a lack of institutional reform? That the budget for foreign aid is shrinking while policies tend to improve in poor countries, there is reason to believe there is a negative correlation between foreign aid and institutional development.

In their article, Easterly, Revise and Roodman seek to debunk some of the claims made by the previous article. The authors argue that the idea that foreign aid results in positive growth in countries with good financial management presumes that foreign aid causes growth and that countries with good policies should be the target of foreign aid donors. Their belief is that such conclusions were reached due to limited data availability.

The most crucial element of the data is in the time-series. By extending the period of analysis to from 1993 to 1997, the authors reduced confidence in the assertion that foreign aid causes growth. This is a significant finding as it parallels my concerns regarding the contexts of the research method. Furthermore, this study illuminates the dangers of presumptuous research methods in that minor alterations to the study produced completely different results, challenging previous literature.

In his article on the influence of non-tax revenue on political development and regime security, author Kevin Morrison illustrates that revenue accrued by governments from non-taxable revenues like from oil or foreign aid essentially secure regimes and their grasp on power. This in turn reduces the incentive for reform and public investment. The reliability of the data is quite strong, given that the time series stretches from 1973-1999. I wonder still, given that in the previous study where only three years were added therein altering the findings, if perhaps adding a few more years to this study would have the same effect. That 80 countries were tested, a relatively large sample size, is another indication of the strength of this research method. While the authors generally tend to control for the more common variable of ethnicity and natural resource endowment, perhaps controlling for other variables might affect the outcome of the study, variables such as religious homogeneity, security threats, cultural relativity and historical evolution. How do we know that the religious dynamic, or the threat of religious militants, or perhaps the mere cultural differences of a region are not responsible for the level of redistribution and political development within a respective country?

The common thread among these articles is that there is a negative relationship between foreign aid and political development. That is, the more foreign aid a government receives, the less likely it is to implement the changes that foreign aid was intended to induce. For the most part the research methods were rather reliable, however contextualizing the data by measuring it against non-African states, as well as broadening the time-series spectrum, could provided more accurate indications of the relationship between foreign aid and development. While there are some cases of incomes rising as a result of foreign aid, generally, as indicated in “Aid, Policies and Growth”, as the global budget for foreign aid shrinks, better policies continue to blossom in poor countries where foreign aid may have once paralyzed institutional development and public investment. Further studies indicate that rises in growth via income are poor indicators of the positive impact of foreign aid on political development, especially when the research covers a more broad time-series. Perhaps future studies could focus on trying to gather data that covers a wider time range. Furthermore, researchers could create ways to control for the aforementioned variables of religious homogeneity, stability (via the stability index), terrorist threats and cultural relativity.

The implications of these findings are far-reaching. They suggest that the motives of foreign aid donors have been rather inconsistent with their principles, and that they have in fact perpetuated corruption. It is not surprising that global hegemonies seek their own strategic interests. What is more surprising is the threats to international security this dynamic could cause. As donors funnel foreign aid to authoritarian regimes, especially those that govern countries with tensions between social groups, it forces analysts to wonder whether there is a correlation between these provisions, which prop up and support oppressive and divisive regimes, and the rise of insurgent military movements in the late twentieth and early twenty first centuries.

Perhaps looking at countries on a case by case could show other country specific qualities such as resource endowment, geography, economics, culture, and history. These are more qualitative in nature, underscoring my emphasis on the presence of prejudgments in the scholarly tradition.

A 3:2 ratio that long prevailed in the overall levels of U.S. aid to Israel and Egypt was applied to the reduction in economic aid ($60 million reduction for Israel and $40 million reduction for Egypt), but Egypt did not receive an increase in military assistance. Thus, Congress reduced ESF aid to Egypt from $815 million in FY1998 to $411 million in FY2008 (Sharp 2015).

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