Aid Fragmentation, Corruption, and Conflict

Effectiveness of development aid is widely perceived to suffer in the presence of multiple donors with overlapping responsibilities. We test existing theory on aid fragmentation by studying aid provision under numerous donors throughout Afghanistan from 2006-2009. Leveraging granular military data on aid, conflict, corruption, and public opinion, we conduct the first micro-level analysis of aid fragmentation. When delivered by a single donor, aid reduces conflict, curtails corruption, and boosts public opinion. But under donor fragmentation, the benefits of aid are significantly reduced. We are able to distinguish among various causal pathways underlying these heterogeneous effects. Our findings are robust to accounting for a battery of novel observable confounding factors as well as a computational bounding exercise used to assess potential bias arising from unobserved factors. Our evidence suggests fragmentation facilitates corruption and erodes the ability of development aid to win ‘hearts and minds’ in the fight against insurgents. This study yields potentially actionable insights about improving government policy and public welfare outcomes in fragile and weakly institutionalized settings. ∗We thank Erwin Bulte, Richard Carney, Jiahua Che, Chris Elbers, David McKenzie, Remco Oostendorp, Paul Pelzl, Mounu Prem, Toh Wen Qiang, Jacob Shapiro, Martin Wiegand, Frank Yu, and seminar participants at the Tinbergen Institute, the Vrije Universiteit Amsterdam, the Paris School of Economics (HiCN Workshop), and CEIBS for helpful comments. Conclusions reached from the ANQAR data herein are not attributable to NATO/RS nor to US Forces Afghanistan (USFOR-A), and interpretations offered are not necessarily shared by RS/NATO/USFOR-A. †China Europe International Business School (CEIBS). t.b. child@ceibs.edu ‡Harris School of Public Policy, University of Chicago. austinlw@uchicago.edu University of Amsterdam / Tinbergen Institute. y.xiao@uva.nl Electronic copy available at: https://ssrn.com/abstract=3543247 We are invariably going to get it wrong. Let’s be honest, it’s almost impossible to avoid unintended consequences of our work here. Development aid donor interview Kabul, Afghanistan, 2013 Conflicted states have received enormous amounts of foreign aid in recent decades. From 2000-2012, official development assistance (ODA) to fragile states grew more than 10% per year, and totalled over USD 450 billion. Among the top 10 ODA recipients in 2010, nine were currently in conflict. The US government alone has doled out more than USD 120 billion on development in Afghanistan, and over USD 80 billion in Iraq.1 Donor nations expect foreign aid to improve stability in fragile states, in addition to furthering development. Empirical evidence suggests, however, the relation between aid and conflict is unclear. Aid has proven successful in some settings (e.g. Berman et al., 2011b), but either inconsequential or even harmful in others (e.g. Berman et al., 2011a; Crost et al., 2014). 2 Policymakers and scholars cite various channels through which aid may impact security. First, aid may improve local economic conditions, providing alternative careers for would-be insurgents. Second, aid may strengthen state institutions, improving the state’s capacity to deter or pre-empt attacks. Third, aid may attract predation, thereby eroding state institutions and/or directly financing rebels. Finally, follow-on effects from the aforementioned channels run through community support. If aid boosts support for government, it facilitates broader cooperation in the fight against insurgents; if aid degrades public support, conflict can intensify. Taken together, aid’s stabilizing potential ultimately hinges on its effectiveness in improving economic conditions and state institutions. But the effectiveness of aid in this regard is highly uncertain ex ante.3 Aid effectiveness has been a key topic of development summits since the Monterrey Consensus in which donors prioritized aid delivery alongside the traditional metric of ‘dollars Aid figures are from OECD (2013), OECD (2015), Special Inspector General for Iraq Reconstruction (2013), and Special Inspector General for Afghanistan Reconstruction (2018). For more success stories, see Iyengar et al. (2011), Sexton (2016), and Beath et al. (2018). Relatively ambiguous results appear also in Chou (2012), Böhnke and Zürcher (2013), Child (2014), and Adams (2015). Further evidence of destabilizing aid is offered in Nunn and Qian (2014), Khanna and Zimmermann (2017), and Child (2019). For a history of studies examining the impact of aid on growth, see Easterly (2003). A much smaller literature on aid and state institutions is discussed later in this introduction.