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Kalli Perano Methods of Political Research March 16, 2013

Foreign Aid as a Counterterrorist Policy: Evaluating the use of US Foreign Aid to Combat Terrorism in the Post 9/11 Global Context Introduction: Since 9/11, terrorism and counterterrorism are some of the most talked about topics among scholars today. The U.S., as a global leader and with a particular investment in the issue, has had to come up with strategies on how to allocate its resources to most effectively fight terrorism. Terrorism, especially the new wave terrorism we are seeing today, has essentially broken the bounds of conventional forms of fighting and introduced a new kind of transnational warfare that the U.S. is not as prepared to fight. Therefore, the U.S. has started to show an increased dedication to its counterterrorist policies since 9/11, with the hope that it can prevent the terrorism phenomenon from gaining strength and spreading further across the globe. It appears that one particular area of interest among the global community is looking at the environment in which terrorist groups seem to arise and thrive with the idea that this information will better-informed policy decisions surrounding counterterrorism. For example, one of the leading theories during the Bush administration was that terrorism was linked to undemocratic, poverty-ridden countries and, thus, a popular foreign policy measure related to counterterrorism has been the use of foreign aid. However, foreign aid as a counterterrorist policy has been controversial both in terms of whether or not we can draw a causal connection between economic development and terrorism as well as if we can deem current aid policies as being effective or not. In this

paper, I will attempt to investigate this debate by examining the following research question: Is increasing the amount of U.S. foreign aid afforded to the Middle East and West Asia an effective policy initiative in combating terrorism in that region? Aid and Counterterrorism The literature on the relationship between aid and terrorism is very much in disagreement over whether or not aid reduces terrorist activity. A common argument among proponents of foreign aid policies is that supplying foreign aid to a country can help with government reform, thereby targeting the environmental conditions that foster terrorist activity. For example, Azam and Thelen (2008) argue that the level of education and foreign aid reduce the supply of terrorist attacks of the recipient countries by creating positive reforms in the governments behavior. The findings conducted in this study indicate that foreign aid is used as a means to induce local governments to fight terrorism within their sphere of influence, and thus, protect the political and economic interests of the donors. Azam and Thelen (2008) promote the policy suggestion that Western democracies, being the main targets of terrorist attacks, would benefits from investing more funds in foreign aid with an emphasis on education. Similarly, other literature has indicated that aid can reduce terrorism if targeted at particular sectors, including education, conflict prevention/resolution, health, governance, and civil society (Young and Findley, 2011). Generally speaking, this argument suggests that foreign aid is an effective counterterrorist policy when it is used in a targeted way, specifically at these certain sectors. Bandyopadhyay, Sandler, and Younas (2011) draw a similar conclusion, but illuminate how this relationship is somewhat conditional. They use a two-stage game in

which the host country receives aid in two forms: general aid and counterterrorism-tied aid. Although the results show a complex relationship between foreign aid and counterterrorist measures, they find that increased terrorism reduces FDI and increased counterterrorism aid raises FDI. Thus, they conclude that a greater emphasis on tied aid will alleviate the damaging effects of terrorism on foreign direct investment. At the same time, there has also been research that untied aid may be more effective in cases where the recipient countrys regime is fragile (Bandyopadhyay, Sandler, Younas, 2009). In these cases, the regime may lose popular support, as seen in the case of Pakistan and Iraq, where US-supported counterterrorist measures did not please the regimes constituencies. This can result in a potential collapse of friendly regimes, which would lead to a greater terrorist threat both at home and abroad. On the other hand, many argue that we cannot draw a parallel between economic strife and terrorism, thus foreign aid proves ineffective in helping curb terrorist activity. Francis Owusu (2007) makes the argument that Bushs Millenium Project, aimed specifically at increasing U.S. foreign aid under the assumption that terrorism and poverty are linked, has a questionable probability of success in the war on terror. She argues that in order for this project to be effective, we must first uncover more information on the connection between poverty and terrorism because a program like this could result in an over focus on security that could in fact end up marginalizing the poor. Second, the Bush administration needs to look for backing of this foreign aid endeavor from the international community. Lastly, there are concerns about how the U.S. has given out foreign aid in the past and the fact that this program is working around USAID instead of reforming it might be problematic. Similarly, Carol Graham (2002) makes the

argument that establishing a clear cause and effect relationship between economic development and terrorism is problematic. Firstly, she cites the common example of alQaeda employing neither poor nor uneducated men in the 9/11 terrorist attacks. Furthermore, she points to the fact that not all poor countries have a problem with terrorism nor do they all provide safe havens for terrorists. Graham concludes that economic development and povertys relationship to foreign aid is conditional upon many factors including national interest of the donor country, trade policies, and international support, among others, and that there needs to be greater research as well as general reforms to foreign aid policies before it can be a plausible solution for fighting terrorism. Research Design: My hypothesis is that U.S. foreign aid given to the Middle East and West Asia will be effective in reducing incidence of terrorism when targeted at specific sectors of a given country including democracy and governance, health, education, economic development and agriculture, humanitarian assistance, and conflict management and mitigation. Therefore, I will conduct a hypothesis test where the null hypothesis is that U.S. foreign aid has no relationship with incidence of terrorism, and the alternative hypothesis is that U.S. aid in these six sectors combined with the absence of torture reduce total incidence of terrorism in a given country. To examine foreign aid, I am using the USAID dataset from the Cross-National Research on USAIDs Democracy and Governance Programs. This USAID research aims to analyze the impact of USAIDs democracy and governance programs using a worldwide sample of 195 countries over a period from 1990-2004. The dataset contains a

total of 2, 866 observations corresponding to 540 variables. The unit of analysis is the country year, and aid is measured in millions of constant 2000 U.S. dollars. Additionally, since the funds appropriated during a given year may be spent the following year, the key aid measures reflect the two-year running means of total USAID investment. Therefore, using this dataset, I will look at the total amount of USAID investment in the democracy and governance, agricultural and economic development, education, health, humanitarian assistance, and conflict management and mitigation aid programs for all countries in the Middle East and West Asia from 1990-2004. Furthermore, I am going to use the USAID variable for torture and other cruel, inhumane, or degrading treatment as an added indicator of a given countrys democracy and governance. In this case, torture is defined as: The purposeful inflicting of extreme pain, whether mental or physical, by government officials or by private individuals at the instigation of government officials. Torture includes the use of physical and other force, by police and prison guards, that is cruel, inhuman, or degrading (Cingranelli and Richards 2004, 12). Furthermore, in this dataset, torture is coded where 0=Frequent cases of torture (40 or more during the year or deemed as gross, widespread, system, ect), 1=Occasional torture (1 to 49 episodes per year), and 2=No torture occurred (U.S. State Department and Amnesty International Reports). In terms of my dependent variable, my data on terrorism is from the RAND Database of Worldwide Terrorism Incidents. The RAND database contains over 36,000 incidents of terrorism from 1972 through 2009. I will use the incident frequency chronological graphs to trace the total number of all recorded terrorist events per year in each country in the Middle East and West Asia from 1990-2004.

I chose to focus on the Middle East and West Asia because it has consistently been one of the most concentrated areas of terrorist activity and, consequently, the U.S. has given this region a significant amount of aid over the years. Moreover, the time period of 1990 to 2004 was chosen because it draws on all of the data from the USAID dataset, and I want to keep the time period consistent among all the variables so it can act as a control. Lastly, I chose these specific aid sectors because they take into account all the different sectors that various scholars have argued may be correlated with terrorism. Moreover, by choosing a broad measurement of each sector rather than focusing on the subsets in each category, I hope to produce a more comprehensive picture of the relationship between US foreign aid and terrorism. However, the democracy and governance variable has so many factors that I thought adding the torture variable might provide a clearer idea of whether or not the rule of law aspect of democracy and governance is important in preventing or reducing terrorism. There are many other variables that are important indicators of democracy and governance, but torture has become an increasingly used practice since 9/11, so I thought it was particularly relevant. In order to analyze the relationship between aid and terrorist activity, I will run a multivariate poisson regression of foreign aid against incidence of terrorism for each of the six sectors plus the presence or absence of torture. I am choosing to use a poisson regression because my dependent variable uses count as its unit of measurement, which means a linear regression model will not be very fitting for this data. However, a poisson regression is a regression analysis designed specifically to model count data, and, therefore, should be much more effective. The dependent variable in my study is the total number of incidents of terrorism per year, the independent variables are total USAID

investment in each of these six aid programs (measured in millions of constant 2000 dollars) and torture occurrence, which has been recoded so that 0=Torture used in a given country and 1=No torture used in a given country, measured for each country per year. The unit of analysis is the country, and I intend to look at all of the cases in the specified region and time period, thus, there is no need to draw a sample in this study.
Table 1: Summary Statistics of All Variables

Variable Incidents of Terrorism Democ. & Gov. Aid Econ. Dev. Aid Education Aid Health Aid Humanitarian Assistance Aid Conflict Management Aid Use of Torture

Obs 204 363 363 363 363 363 363

Mean 25.93 3.34 71.27 2.02 3.29 .5378 .2395

Std. Dev. 80.77 15.44 263.66 7.25 7.16 4.95 1.57

Min. 0 0 0 0 0 0 0

Max 850 261.74 1830.29 90.13 61.40 65.69 20.16




Looking at the summary statistics for each variable (Table 1), there seem to be a sufficient number of cases to be able to proceed with a regression analysis. However, it is evident that these variables are going to be skewed. Looking at all of the variables except for torture, since it is dichotomous, we can see that they all seem to be skewed to the left in the fact that even with fairly large maximum values, the means are still fairly small. Moreover, the large ranges and standard deviations are also signs that this data is likely to be skewed. Although a distribution problem like this would normally be solved by logarithmically transforming each variable using the natural or base ten logarithm, these variables all contain zeros and my dependent variable is measured in counts, so

transforming them would result in too many dropped cases. Thus, I am going to have to proceed with the study knowing that this skew is likely going to influence my results. Results and Analysis: Since demonstrating a causal relationship between incidence of terrorism and US foreign aid investment will be difficult, due to the large amount of factors associated with terrorism, I will attempt to achieve a best-fit model for this data using model nesting. Therefore, I will run a multivariate poisson regression for US aid investment in all of the six foreign aid programs in Model 1, for all of the non-aid variables in Model 2, for all of the variables, both aid and non-aid, in Model 3, and finally, for the variables that are most significant, based off of their p-statistic, collinearity tests, and chi-squared goodness-offit tests, to create a best-fit model for the data in Model 4.
Table 2: Poisson Regression Estimates with Incidence Rate Ratios for All Models

Variable Democracy & Governance Aid Econ. Development Aid Education Aid Health Aid Humanitarian Assistance Aid Conflict Management Aid Torture N Pseudo R2 Mean VIF GOF chi2

Model 1 1.06(.002) *** 1.00(.000) *** .9395(.003) *** 1.026(.002) *** .9812(.002) *** .7757(.031) ***

Model 2

Model 3 1.043(.005) *** 1.000(.000) *** 1.046(.004) *** .9123(.007) *** .8016(.026) *** .8468(.026) ***

Model 4


.8332*** .8589*** .1097*** 174 .1382 1.01 4491.918

.1056 (.353) *** 203 .1974 2.53 9671.07 174 .0186 1.01 5196.334

.1047(.035) *** 174 .0964 1.22 4738.366

Notes: Dependent variable is incidence of terrorism; Figures represent Poisson Regression incidence rate ratio results; standard errors in parentheses; z-score coefficients *p<.10, **p<.05, ***p<.01; GOF test is Goodness of Fit chi2 test for each model.

Looking at Table 2, all of the variables seem to perform well in each model with all of the incidence rate ratios showing significance at the .01 levels. The pseudo Rsquared statistics show that Model 1 and Model 4 perform better than Models 2 and 3. Furthermore, the large chi-squared statistics for each model indicate that the models are a good fit. The mean VIFs are fairly low for all four models, implying that there is not much of a collinearity problem. However, Model 1s mean VIF is higher than the rest, which suggests that some collinearity problems exist among the aid variables. In analyzing the best-fit model, we can interpret the IRR statistic by finding the percent change of incidence of terrorism, using the equation: IRR-1=% change. Therefore, the incident rate ratio for agricultural and economic development aid shows that every $1 million increase in USAID investment in agricultural and economic development aid programs is associated with a .1% increase in incidence of terrorism. However, when looking at the humanitarian assistance aid, it seems that every $1 million increase in US investment in humanitarian assistance aid programs is associated with about a 17% decrease in incidence of terrorism. Similarly, conflict management and mitigation aid shows that every $1 million dollar increase in USAID investment in the conflict management and mitigation aid programs is associated with a 14% decrease in incidence of terrorism. Lastly, in terms of torture, no torture occurring in a country is associated with an 89% decrease in incidence of terrorism.

Diagnostic Tests: The first diagnostic test worth looking into is the collinearity tests I ran for Models 3 and 4. This will help to give a better idea of why I chose the variables I did for the best-fit model.
Table 3: Collinearity Diagnostics for Models 1, 3, and 4

Variable Democracy & Governance Aid Agricultural & Economic Development Aid Education Aid Health Aid Humanitarian Assistance Aid Conflict Management and Mitigation Aid Use of Torture Mean VIF

Model 1 5.12 1.08 2.61 1.97 3.35 1.00 .2(.8) .92(.08) .38(.62) .51(.49) .3(.7) .998(.002)

Model 3 1.44 1.03 1.27 1.45 1.22 1.00 1.07 .69(.31) .97(.03) .79(.21) .69(.31) .82(.18) .997(.003) .94(.06)

Model 4



1.01 1.00 1.01 1.01

.995(.005) .995(.005) .986(.014)



Notes: Column 1 shows individual VIF scores and column 2 shows tolerance statistics for each model; r-squared statistics in parenthesis.

Looking at Table 3, there is evidence of some multicollinearity problems in Model 1, particularly with democracy and governance aid, which has a low tolerance statistic of .20 and the highest VIF score of 5.12. Furthermore, agricultural and economic development aid and conflict management and mitigation aid seem to have the least amount of collinearity problems, seen in their high tolerance statistics of .9217 and .9982 respectively. This means that these two variables have a low correlation with the other independent variables and the variation in these variables are weakly explained by a model including the other independent variables. When we add in the torture variable in Model 3, these statistics change slightly, but agricultural and economic growth and conflict management and mitigation aid are still the least correlated with the independent


variables. However, now humanitarian assistance aid also exhibits little collinearity problems with a low VIF score of 1.22 and a fairly high tolerance statistic of .82. Furthermore, torture also does not present any multicollinearity, so we can keep it as well. Therefore, taking the variables with the highest tolerance statistics, I am left with agricultural and economic aid, humanitarian assistance aid, conflict management and mitigation aid, and torture as the variables for my best-fit model. Another result worth further explanation is the relationship between US investment in the conflict management and mitigation aid program and incidence of terrorism. Although humanitarian assistance aid has a slightly higher IRR statistic in the best-fit model, the conflict aid variable is most consistent variable in showing a reduction in incidence of terrorism across the four models. Therefore, using the best-fit model, I am going to hold economic and agricultural aid and humanitarian assistance aid at their means to look at how US investment in conflict management and mitigation aid programs influences the predicted incidents of terrorism when torture is and is not being used.
Figure 1: Predicted Value Plot of US Investment in Conflict Management and Mitigation Aid Programs against Incidence of Terrorism
15 0 5 10

5 10 15 20 Non-DG - Conflict Management and Mitigation (Millions 2000 $, 2-year) exp(terror) torture exp(terror) no torture

Notes: Probability curves adjusted to hold all other variables constant.


As we can see in Figure 1, looking at just the y-intercept, it is evident that when torture is present the probability curve is starting at about 18 incidents of terrorism compared to about 5 when torture is not occurring. This downward curve shows that as US investment in conflict management and mitigation aid programs increases, the predicted number of incidents of terrorism decreases. Furthermore, this negative relationship is even more pronounced when torture is occurring within a given country than when no torture is occurring. This makes sense considering that torture is an indicator of the strength of a countrys rule of law and governance. Thus, these results imply that those countries with weak regimes and unjust legal and governmental practices are more likely to experience terrorism. Ultimately, the results show that we can reject the null hypothesis that there is no relationship between US foreign aid investment and incidence of terrorism, based on every p statistic being significant at the .01 level. However, my hypothesis can only be provisionally accepted in regard to USAID investment in humanitarian assistance and conflict management aid programs as they were the only aid programs consistently associated with a decrease in incidence of terrorism across the models. Furthermore, we can provisionally accept the part of my hypothesis pertaining to torture because it was significant at the .01 level, and we saw that there is a significant reduction in incidence of terrorism when torture is not being used in a given country. Ultimately, however, we cannot accept my hypothesis as a whole, only in certain parts. Conclusion and Areas for Future Research: Overall, this study illuminates the complexities in the relationship between foreign aid and terrorism. Specifically, it appears that not all US foreign aid programs


associated with socio-economic factors commonly believed to foster terrorism are actually effective in reducing terrorist activity. Furthermore, the significant relationship discovered between torture and incidence of terrorism is just a testament to the fact that these indicator control variables are extremely important when looking at the issue of terrorism. Furthermore, it points to the idea that democracy and governance are likely connected with terrorism, but a more detailed look is required to find the specific factors within a government that affect terrorism. One of the biggest problems I encountered with this study was dealing with endogeneity, since it is reasonable to assume that a country experiencing terrorism would receive more foreign aid. Thus, it is hard to know whether U.S. foreign aid is influencing incidence of terrorism or it is the other way around. Furthermore, there are so many factors to consider when looking at the issue of terrorism, that it is very possible underlying variables are influencing the results. This is particularly likely when taking into account the heavy skew in all of my variables. Lastly, testing whether or not these socio-economic factors are influential in frequency of terrorism leaves much room for the omitted variable bias. I would say that I included enough aid variables in terms of covering a wide range of sectors within a country. However, there are many subsets to these aid variables that I did not include, which may in fact be more significant than just the total amount of aid invested in these different categories. Evidently this study struggled in some ways to try to quantitatively explain the relationship between US foreign aid investment and incidence of terrorism. Therefore, I think it could find a lot of success in drawing on some qualitative elements in the future. For example, it might be beneficial to examine an influential case, like Iraq in 2003 and


2004, since the skewedness of my data shows that it is likely certain cases are driving my results. Moreover, a qualitative study would enable one to trace the number of terrorist attacks in a given country over a span of time, locating in what years these numbers spike, and then looking into the political, economic, and social context of that year along with the kinds and amounts of US aid being given at that time. This kind of analysis would give much more insight into those underlying variables influencing incidence of terrorism that I am worried about in my quantitative analysis. It could also shed light on relevant information about a particular terrorist organization. For example, knowing if alQaeda is behind the majority of attacks in Iraq or Hamas in Israel and the West Bank can help differentiate between a country experiencing terrorism from a group with political motives and a group that is just capitalizing on the fragile state of a given country. This could illuminate whether or not the focus should be on looking at variables dealing with economic development or ones that focus on the practices of a countrys governmental regime. Overall, I think future research should find a way to combine using a quantitative method for case selection and a qualitative process for comparing cases and drawing overall conclusions. For example, Seawright and Gerrings case selection methods show that one can quantitatively identify which cases are influential, deviant, or extreme, or use propensity scores to help create a most similar design. Evidently, the issue of foreign aid and terrorism is still very much up for debate, but continuing to use different methods and models of research can help to keep unraveling the relationship between the two. Moreover, it is important for policymakers to understand the complexities of this relationship before proceeding with aggressive foreign aid policies. As my study shows,


there are many factors at play when it comes to terrorism, and with its current economic situation, US does not have the luxury of wasting resources. Therefore, it seems that at this point in time, the only way to ensure that foreign aid is productive in combating terrorism is for decisions to be made on a case-by-case basis rather than trying to create any general policies until more research has been done.


Works Cited: Azam, Jean-Paul and Veronique Thelen. The Roles of Foreign Aid and Education in the War on Terror. Public Choice 135.3/4 (2008): 375-397. JSTOR. Web. <> Bandyopadhyay, Subayu, Todd Sandler, and Javed Younas. Foreign Aid and Counterterrorism Policy. Oxford Economic Papers 63.3 (2009): 423-447. JSTOR. Web. 27 Jan. 2013. <>. Bandyopadhyay, Subhayu, Todd Sandler, and Javed Younas. "Foreign Direct Investment, Aid, and Terrorism: An Analysis of Developing Countries." Federal Reserve Bank of St. Louis Working Paper No (2011). Finkel, Steven, Anbal Prez-Lin, Mitchell Seligson, and C. Neal Tate. Cross-National Research on USAIDs Democracy and Governance Programs. USAID (20062007). Gerring, John and Jason Seawright. Case Selection Techniques in Case Study Research: A Menu of Qualitative and Quantitative Options. Political Research Quarterly 61.2 (2008): 294-308. JSTOR. Graham, Carol. Can Foreign Aid Help Stop Terrorism? Not with Magic Bullets. The Brooking Review 20.3 (2002): 28-92. JSTOR. Web. 27 Jan. 2013. <> National Consortium for the Study of Terrorism and Responses to Terrorism (START).


(2012). Global Terrorism Database [Data fie]. Retrieved from Owusu, Francis Y. Post-9/11 U.S. Foreign Aid, the Millenium Challenge Account, and Africa: How Many Birds Can One Stone Kill? Africa Today 54.1 (2007): 3-26. JSTOR. Web. 27 Jan. 2013. <> Young, Joseph K and Michael G. Findley. Can Peace be Purchased? A Sectoral-Level Analysis of Aids Influence on Transnational Terrorism. Public Choice 149 (2011): 365-381. Proquest. Web. 1 Feb. 2013