Determinants of Foreign Aid: Rivalry and Domestic Instability

ABSTRACT

Foreign aid is usually seen as a form of international cooperation. Thus, the expectation is that states engaged in international rivalry with one another should be unlikely to provide each other aid. However, they do provide their enemies aid. We consider how situations of uncertainty influence aid transfers between states. We argue that states may provide each other aid to limit uncertainty from potential regime changes that could lead to war. Such uncertainty is particularly bad for rivals who are prone to militarized conflict. We find that rivals may provide one another foreign aid when one of the countries is experiencing regime-threatening levels of domestic instability. We compare these results to the behavior of nonrivals and find that: Rivals are likely to provide their enemies aid in times of uncertainty; rivals are no less likely to give aid to each other than are nonrivals; and rivals provide more aid during times of instability than do nonrivals.

KEYWORDS:

• Foreign aid
• instability
• rivalry
• uncertainty

Supplemental data for this article can be accessed on the publisher’s website.

Notes

¹ Rivalries are categorized here consistent with Diehl and Goertz’s (2000:44) distinction between isolated, proto, and enduring rivalries. Isolated rivals are those states experiencing one or two disputes. Proto rivalries are states that have experienced three to five disputes. Finally, enduring rivalries are those states experiencing six or more disputes over at least a 20-year period of time.

² It is also important to note that Salehyan et al. (2011) do not measure whether the rival provides the aid to rebels. They only measure whether the government having international rivals increases the likelihood that rebels will receive transnational support in general.

³ Note that we do not assume that turnover will lead to a more hawkish leader. Instability may result in a new leader coming to power that is more favorable to the rival government. Our argument is only that under conditions of high uncertainty, the leader cannot be sure that leadership turnover will result in a government that they prefer more to the status quo. It is this uncertainty that drives the rival state’s foreign aid decision making.

⁴ See Weiss (2013) for a similar argument. Weiss notes that states may have incentives to make concessions to an adversary when failure to give concessions could lead to regime change. She suggests that, “even if the foreign government desires regime change … the transition costs may be too high” (Weiss 2013:8). This is consistent with our own argument that the uncertainty over what may come from irregular turnover may override disagreements with the current regime.

⁵ Providing one’s rival assistance may help ease tensions between the states, which a leader may also find useful for later bargaining with his/her enemy.

⁶ There is significant debate in the foreign aid literature over whether aid affects the changes the donor desires (see for example, Burnside and Dollar 2000; Easterly, Levine, and Roodman 2004). For our purposes, it is important only that leaders send aid consistent with the belief that it does affect change. There are many intervening variables that may affect the connection between the transfer of aid and the end of instability. While important, these factors are not the focus of this article.

⁷ See online appendix for more information on the types of aid provided between rivals.

⁸ This measure does not capture the potential for covert aid transfers between rivals. However, if covert transfers follow the logic we propose, then we are underestimating the effect of our covariates of interest, which provides a conservative test of our hypotheses.

⁹ We use Clarify (King, Tomz, and Wittenberg 2000) to generate predicted probabilities and effect sizes.

¹⁰ See the online appendix for further discussion of the selection model.

¹¹ We would like to thank an anonymous reviewer for pointing out the possible effects aid could have on rivalry relations.