The Impact of Armed Conflict and Terrorism on Foreign Aid: a Sector-Level Analysis

We examine whether armed conflict, international and domestic terrorism affect distribution of bilateral and multilateral foreign aid. We argue that the two types of aid may respond differently to security challenges because of donors’ disparate objectives and aid-giving motives. The results show that armed conflict reduces the amounts of obtained aid of all types, conditional on a country being an aid recipient. Multilateral donors are also less likely to include a conflict-ridden country on a recipient list. Domestic terrorism increases bilateral aid, but this effect appears to be entirely driven by assistance from the United States, arguably a terrorist prime-target country. When we disaggregate aid flows by their purposes, we find that international and domestic terrorism are associated with increases in bilateral aid for promotion of governance, education, health and society.