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Aid modality and growth under post-conflict conditions

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Abstract

Amid a massive influx of development assistance, considerable skepticism remains regarding the effectiveness of aid in promoting the development of conflict-affected states under post-conflict conditions. Although the importance of aid modalities and policies for allocating aid to improve aid effectiveness has been the subject of much discussion, there is still limited research on post-conflict countries. The current paper, accordingly, contributes to the aid-development literature by offering an assessment of the effectiveness of specific aid modalities in the context of post-conflict circumstances. We measure the effects of four key aid modalities—financial program aid, project aid, technical assistance, and food aid—on the economic growth of conflict-affected countries employing the system-GMM estimator and using the conflict database of the Uppsala Conflict Data Program and Organization for Economic Co-operation and Development’s Development Assistance Committee aid database. We find that financial program aid, which generally supports national finance and state-led development programs, has a marginally significant positive effect when it is administered in post-conflict conditions, particularly for non-least developed and African countries. In contrast, other aid types—food aid and technical assistance show statistically insignificant or negative effects on the GDP per capita growth under post-conflict conditions. These heterogeneous effects of aid by type depending on a country’s development status and region suggests that the allocation of aid to conflict-affected countries must be strategic, considering the conflict type, development policy, and absorptive capacity of the recipients to be effective.

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Notes

  1. Authors’ calculation based on OECD DAC CRS (2020) data.

  2. Uppsala Conflict Data Program (https://ucdp.uu.se).

  3. Bitzer and Goeren (2018) conducted a detailed meta-analysis regarding the methodologies used for measuring aid effectiveness.

  4. We also conduct the same analysis including a set of control variables that include inflation rate, broad money to GDP ratio, government expenditure, and institutional (government) quality that have been widely used in previous literature on the aid–growth nexus (Burnside and Dollar, 2000). The regression results including these control variables are available upon request.

  5. The post-conflict dummy variable is a binary variable with a value of 1 or 0 that is not derived from a three-year moving average.

  6. Controversy continues regarding how many years the death toll should remain below a certain level to define the post-conflict stabilization stage. This study referenced Collier and Hoeffler (2004) and Donaubauer et al. (2019), who contended that a country has entered a stabilization phase when the annual number of deaths due to conflict is less than 25 for 4 consecutive years. In that case, the Postconflict indicator will be 1 as a dummy variable in the fifth year.

  7. We also modify periods of peace by defining the post-conflict stage after 8 years of peace instead of the four-year period used in the baseline. The estimation results using this modified peace period showed only weak and marginal effects on GDP per capita growth and sectoral development compared with the baseline estimations. These results are available upon request.

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Funding

Funding is provided by Korea Institute for International Economic Policy.

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Authors and Affiliations

  1. Evidence-to-Impact Collaboratives, Pennsylvania State University, University Park, PA, USA

    Yoon S. Hur

  2. KDI School of Public Policy and Management, Sejong, Republic of Korea

    Baran Han

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  1. Yoon S. Hur
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Hur, Y.S., Han, B. Aid modality and growth under post-conflict conditions. Rev World Econ (2023). https://doi.org/10.1007/s10290-023-00511-7

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