Fueling Conflict? (De)Escalation and Bilateral Aid

This paper studies the e?ects of bilateral foreign aid on con?ict escalation and de-escalation. We make three major contributions. First, we combine data on civil wars with data on low level con?icts in a new ordinal measure capturing the two-sided and multifaceted nature of con?ict. 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 e?ect of foreign aid on con?ict by predicting bilateral aid ?ows based on electoraloutcomesofdonorcountriesthatareexogenoustorecipients. Weestablish that thee?ect of foreignaid on the various transition probabilitiesis heterogeneous andcanbesubstantial. Receivingbilateralaidraisesthechancesofescalatingfrom small con?ict to armed con?ict, but we ?nd no evidence that aid ignites con?ict in truly peaceful countries.