How development aid explains (or not) the rise and fall of insurgent attacks in Iraq
Pui-hang Wong
#2017-006
Despite its uncertain effects on political violence, foreign aid is
still used as a means to counter insurgency. Recent examples include the
US Commander's Emergency Response Program (CERP) in Iraq and
Afghanistan. This paper describes how local political dynamics can
complicate the causal effect of development assistance on insurgent
attacks and estimates the effect of small development projects on
attacks targeting foreign donors. Dynamic panel data analysis shows that
development assistance induced more attacks against the Coalition forces
than reduced them. To further uncover the causal mechanism behind the
relationship, I also examine three prominent explanations in the
literature. The analysis reveals that the level of violence increased
neither because insurgency became a more attractive option than legal
economic activities (the opportunity costs explanation) nor because the
insurgents tried to sabotage the development projects to pre-empt the
hearts and minds effect (the pre-emption explanation). Furthermore,
although the third, enrichment explanation agrees with the case, my
analysis reveals that Iraqi insurgents did become stronger not only by
looting, as most studies suggest. The level of violence in Iraq
increased because project contractors needed to pay local leaders and
insurgents to get access and buy security. While the US military buys
down violence against them, discontented leaders contract violence out
to third-party, most likely foreign fighters, to initiate attacks
against the Coalition forces on behalf of them. In this light, future
counterinsurgency efforts need to mind the ties between aid recipients
and other actors, provide better security to contractors, or try to
allocate aid more strategically.
Keywords: Development aid, counterinsurgency, dynamic panel data model,
Iraq
JEL Classification: D74, F50, O11, O53