Does nation building spur economic growth?

Creasey, Ellyn ; Rahman, Ahmed S. ; Smith, Katherine A. 等

I. INTRODUCTION

Nation building, defined as the provision of economic aid conditional on military aid being given in conflict or post-conflict areas, has been an important element of foreign policy for at least a century. (1) Historians date the first nation building operation conducted by the United States back to 1901, when the USS Thomas brought 500 teachers to Manila Bay with naval escorts to "rebuild" the Philippines. (2) Figure 1 indicates that while nation building operations have varied with time, they have been a continual part of global affairs over the last half century. Of course the United States has not been the sole initiator of nation building excursions, European nations have actively engaged in such operations in the Balkans, sub-Saharan Africa, and the Middle East. (3) As shown in Figure 1, episodes peaked after two key historic events. The first coincided with the end of the Cold War around 1992. Many hoped that worldwide peace would emerge from the ruins of the Soviet Empire. But as complex disputes broke out in Somalia, Haiti, and the Balkans, the United Nations and individual countries stepped in with both force and civilian aid to mitigate these emergent humanitarian crises (Dobbins et al. 2008). By the late 1990s, many countries started to tire of nation building forays. During this time in the United States, many politicians built campaigns around an anti-nation building platform. After the events of September 11,2001, perspectives swung back and nation building became a prominent tool in the Global War on Terror (Dempsey 2002).

The terrorist attacks of September 11, 2001 stimulated record levels of government spending on nation building initiatives. (4) According to U.S. Green Book Overseas Loans and Grants, in 2005, the United States alone spent $20 billion in aid to help train foreign troops, provide counter narcotics/terrorism assistance, and other similar activities. (5) This figure does not take into account the added costs of troops and support forces, which include personnel to provide communications, contracting, engineering, intelligence, medical, and other services for troops deployed in theater (Orszag 2007). In 2010, the United States spent $93.8 billion in Afghanistan and $71.3 billion in Iraq, according to the Congressional Research Service.

[FIGURE 1 OMITTED]

This study attempts to measure empirically the direct benefits for the recipient country's development from nation building operations. Foreign aid of any sort has the potential to spur economic growth by increasing capital and/or total factor productivity (through human capital accumulation and the encouragement of more effective policies). (6) During times of conflict, however, growth can be severely impeded by violence and uncertainty. On the one hand, nation building may raise the effectiveness of aid by complementing economic assistance with military security. If military aid reduces uncertainty, a boost to capital or total factor productivity from the simultaneous provision of economic aid may encourage private investment. On the other hand, robust foreign involvement may potentially crowd out private provisions or generate a crippling dependency which hinders growth prospects. What the net growth effect of nation building efforts might be is thus an empirical question, one that surprisingly has not been addressed in prior literature.

Studies have analyzed the growth effects of economic aid, military aid, or conflict in isolation, but have yet to explore the simultaneous combination of all three. (7) Yamarik, Johnson, and Ryan (2010) show that conflict negatively affects economic growth, growing more negative as conflict intensity worsens. Imai and Weinstein (2000) delineate the specific ways in which civil war negatively affects growth. Caplan (2002) adds that conflict harms less-developed nations more than highly developed ones. Additionally, the magnitude of damage depends on the type of war being fought. Caplan (2002) also finds that internal conflicts, typically between a government and a rebel faction, cause greater damage than interstate conflicts. Considering the negative impacts of conflict on economic development, several economists have considered the potential benefits of introducing foreign aid in post-conflict environments. Collier and Hoeffler (2002) create a model for analyzing foreign aid in post civil war situations. Building on the classic foreign aid model first described by Burnside and Dollar (1997), they show that aid impacts growth by the greatest amount during the 4- to 7-year period following an internal war. Kang and Meemik (2004) show that a donor nation tends to provide long-lasting post-conflict economic assistance to nations to whom they previously provided military assistance.

This study stresses the need to look at the confluence of economic aid, military aid, and conflict environments. Specifically, it remains unclear if the provision of economic aid conditional on the presence of military assistance helps countries grow, and if these effects differ during times of war and peace. Of course the likelihood that economic aid and military assistance are themselves endogenous to growth complicates inference. But the implications from a careful study of nation building should be of interest to both policy makers and academics.

The growth effects of nation building are estimated by using a 45-year cross-country dataset. We capture the impact of nation building using a three-way interaction term of economic aid, military support, and conflict regime. As slow growing countries tend to foster increased violence and may require more aid, the estimation of these potential complementarities requires instrumentation. This reverse causality is corrected by a two-stage estimation process. We first estimate aid flows and then use these estimated values to measure the impact of nation building on growth. What we find is that spending on nation building does have a positive effect on economic growth. Once conflicts end, however, we predict that continued military operations coupled with economic aid have negative growth effect on the economy. The results hold whether the United States or another nation or entity provides the military assistance. While there appear to be complementarities between economic aid and military assistance during normal times or during the thick of conflict, such complementarities disappear in the immediate aftermath of conflict in most circumstances.

II. CONFLICT, ECONOMIC AID, AND MILITARY ASSISTANCE IN THE CONTEXT OF SOLOW GROWTH

To tackle the question of potential complementarities between military and economic aid during or after war, we explore the impacts of nation building within the context of the neoclassical growth model. In the study by Solow (1956), output per capita growth is a function of the current stock of capital per effective labor, savings rate, population growth rate, capital depreciation, and labor productivity. In each period, the economy invests a portion of its output toward new capital. Simultaneously, existing per capita capital shrinks due to depreciation and population growth. The model's dynamics imply that each country converges to its own steady state according to its unique long-term fundamentals.

In the context of this framework, the variables in which we are interested, namely aid and conflict, can potentially affect growth in several distinct ways. First, conflict can outright destroy the current capital stock as evidenced by Imai and Weinstein (2000), while aid can potentially help build it back up. Additionally, the instability of conflict can dissuade private investment, lowering new capital formation. The destructive nature of conflict may also raise the depreciation of physical and/or human capital. Aid however can mitigate these effects. Finally, conflict can foster mismanagement and inefficiency, cutting into the productivity of the economy. For these reasons, conflict is likely to have a negative effect on economic growth, whereas aid is likely to have a positive effect.

Neoclassical theory further suggests that these variables should temporarily affect growth (see Easterly et al. 1993). That is, wars waged domestically can disrupt production and depress investments. Once the conflict ends, however, the fundamentals of the economy are restored, and the recovery phase should bolster growth as productive activities recommence and infrastructure is rebuilt. Similarly, temporary aid injections can help hasten a country's return to its long-run growth trajectory without influencing the actual steady-state path itself. We thus consider conflict and aid measures as variables that do not affect the steady state, but can influence the speed of convergence of an economy to its steady state.

In this vein, we wish to explore the interactions between different conflict scenarios and different types of aid on short-term growth. As in the studies by Mankiw, Romer, and Weil (1992) and Islam (1995), we log-linearize and first difference the steady-state equation from the Solow model to construct empirically a panel growth regression. In addition to including the fundamental variables of growth, we include other auxiliary explanatory factors (Durlauf and Quah 1998). The empirical strategy is to include measures of conflict and post-conflict periods, economic aid, and military assistance along with the fundamental variables that are standard in neoclassical growth theory.

Military intervention can help foster a secure environment, potentially encouraging higher savings rates and lowering both physical and human capital depreciation (Jones and Kane 2012). Such intervention could however cause further disruption to the local economy and thus slow down the growth. Similarly, different types of aid during conflict or nonconflict may help or hinder a country's transitory dynamics. This aid may help replenish a war-torn nation's stock of capital, or it may crowd out local private investments. Finally, economic aid and military assistance together may act as complements that provide both funding for local projects and security to allow those projects to succeed. However, joint assistance may crowd out each type of aid or other forms of investments, or foster a dependency that further stagnates the economy. In summary, what the net effects of joint aid projects are during different conflict regimes is an empirical question, to which we now turn.

III. ESTIMATION

To gauge the growth effects of nation building, we augment the neoclassical growth model to incorporate conflict, military assistance, and economic aid variables.

Following Durlauf and Quah (1998), a standard Solow model augmented with human capital can be estimated with panel data using the following equation:

(1) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

where [b.sub.0] = [[mu].sub.j] + [[zeta].sub.t] represents country- and time-specific effects in country j during time period t. (8)

Consistent with the Solow model, we include initial gross domestic product (GDP) levels (Inv,) to capture the idea that growth depends on a country's distance from its steady state. Considering that each country may have a unique steady state, we include proxies that determine each country's steady state: savings rates for physical capital ([s.sub.k]), savings rates for human capital ([s.sub.h]), and population growth rates ([g.sub.n]). The growth span, T, is set to 2-year increments in order to isolate the shorter-term growth effects from our variables of interest.

The impacts of nation building are captured in the following augmented framework:

(2) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

where [DELTA][y.sub.jt] = ln [y.sub.j(t+T)-ln] - ln [y.sub.j,t]; [beta]', [phi]', [theta]' and [alpha]' are vectors of coefficients; and x, a, c, and n are right-hand-side variables, x represents those variables from the traditional Solow framework (the variables in Equation (1)), a represents aid measures, c represents conflict indicators, and n represents interaction terms between aid-types and conflict indicators. We list the specific variables below:

[x.sub.j,t,1] = ln ([y.sub.j,t])

[x.sub.j,t,2] = ln ([investment.sub.j,t]/[GDP.sub.j,t])

[x.sub.j,t,3] = ln ([education.sub.j,t]/[GDP.sub.j,t])

[x.sub.j,t,4] = ln ([population.sub.j,t+T]/ - [population].sub.j,t]/ [population.sub.j,t]

[a.sub.j,t,1] = ln (economic [aid.sub.j,t])

[a.sub.j,t,2] = military aid [indicator.sub.j,t]

[c.sub.j,t,1] = conflict [indicator.sub.j,t]

[c.sub.j,t,2] = post conflict [indicator.sub.j,t]

[n.sub.j,t,1] = ln ([economic aid.sub.j,t]) * conflict [indicator.sub.j,t]

[n.sub.j,t,2] = ln ([economic aid.sub.j,t]) * post-conflict [indicator.sub.j,t]

[n.sub.j,t,3] = military aid [indicator.sub.j,t] * conflict [indicator.sub.j,t]

[n.sub.j,t,4] = military aid [indicator.sub.j,t] * post conflict [indicator.sub.j,t]

[n.sub.j,t,5] = ln ([aid.sub.j,t]) * military aid [indicator.sub.j,t]

[n.sub.j,t,6] = ln ([aid.sub.j,t]) * military aid [indicator.sub.j,t] * military aid [indicator.sub.j,t]

[n.sub.j,t,7] = ln ([aid.sub.j,t]) * military aid [indicator.sub.j,t] * post conflict [indicator.sub.j,t].

The coefficients we estimate are [beta]' = {[[beta].sub.1], [[beta].sub.2], [[beta].sub.3], [[beta].sub.4]) for standard Solow variables, [phi]' = {[[phi].sub.1] [[phi].sub.2]} for aid variables, [theta]' = {[[theta].sub.1], [[theta].sub.2]} for conflict variables, and [alpha]' = {[[alpha].sub.1], [[alpha].sub.2], [[alpha].sub.3], [[alpha].sub.4], [[alpha].sub.5], [[alpha].sub.6], [[alpha].sub.7]} for interaction variables.

While the inclusion of variables for economic aid, conflict, and military assistance shows their individual impacts on output per capita growth, to understand the effects of nation building, the model must include variables that capture the conditional effects of conflict and post-conflict with economic aid and/or military assistance. Interaction terms are therefore added to the model to capture the conditional effects that conflict, post-conflict, military assistance, and foreign aid have on growth; the key coefficients of interest are in [alpha].

Use of interaction terms allows for the possibility of nonadditive effects from these independent variables on growth. Thus, we suggest that the effects of aid change conditioned on the presence of conflict, post-conflict, and other forms of aid. Nation building represents the interaction between economic aid, military assistance, and conflict regime. The marginal growth influence from nation building can be thought of as the growth effect of an extra dollar of economic aid when the country receives military assistance during a conflict period. Similarly, we also wish to gauge the influence of post-conflict nation-building endeavors. That is, we also wish to measure the growth effect of an extra dollar of economic aid when the country receives military assistance directly after a conflict period. (9)

A. Data

We have constructed an annualized country-level panel dataset consisting of 176 countries (21 potential aid providers and 155 potential aid receivers) over the time period of 1960-2005. All growth variables including GDP growth are calculated as 2-year growth rates. This 2-year period isolates the shorter-term effects of conflict and aid on per capita GDP. Dummy variables take on a value of one if the event occurs within that period.

The amount of total investment as a fraction of GDP represents the savings rate. Likewise, the fraction of GDP allocated toward educational expenditure acts as a proxy for human capital investments. GDP and investment data come from the Penn World Tables (2009). Education expenditure shares of GDP and population growth rates come from the World Bank Development Indicators (2009).

The joint Uppsala Conflict Data Program and International Peace Research Institute (UCDPPRIO) Armed Conflict Dataset (2009) provides all conflict-related data including the presence of conflict, the number of battle deaths in a conflict, and the duration of a conflict. In the model, the variable [conflict.sub.j,t] codes as 1 if the conflict occurs within nation j and incurs at least 100 battle-related deaths within time period t. (10) The post-conflict variable [post.sub.j,t] codes as a 1 if no conflict took place in country j during time t and a conflict took place within 3 years after t. (11)

Economic aid data come from the Organization for Economic Cooperation and Development's Creditor Reporting System (OECD CRS, 2007). These data record all grants by the Donor Assistance Countries. The 22 DAC nations are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, the Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States. We also use data on multilateral foreign aid from the World Bank Projects Database (2008). This dataset records every World Bank grant and its recipient country. Because some major powers, such as China and Russia, do not publicly release their foreign aid data, we cannot include these countries. Therefore, the analysis admittedly has a somewhat western focus.

The military assistance data come from the International Military Intervention Dataset. (12) This dataset records all instances of military interventions over international boundaries by regular armed forces of independent states. The military assistance variable, an indicator variable, records any instance when one or more of the 22 OECD nations acts as a third-party intervener. This includes military interventions to assist a nation during a domestic dispute, to protect a socioethnic minority or faction, to help combat terrorists or rebels, to protect economic interests during a conflict, to provide humanitarian aid, to further an ideological issue, or to promote diplomatic goals. Therefore, this variable encompasses a broad spectrum of military aid. Essentially it captures any military action performed by one country within another country's territorial borders for reasons other than waging war. This definition indicates that the acting government of the host nation does not necessarily have to request or accept the military assistance. An intervention that involves multiple OECD nations codes as a single intervention. Additionally and separately, we also record instances when the United Nations acts as a third-party intervener.

A dataset including every nation building operation from 1960 to 2005 does not exist. Here we combine data from the sources mentioned above to construct measures of nation building activities for a wide range of country participants. (13) For our measures, three criteria determine the incidence of nation building. First, nation building can only occur during a conflict or post-conflict period as we have defined. Second, the country must receive economic aid from a foreign public source. Finally, some external military assistance must simultaneously be provided. We call this nation building as it captures the foreign involvement in developing a nation during turmoil (Dobbins et al. 2007). Furthermore, it recognizes that nation building typically involves both foreign investment and military intervention (Fukuyama 2006). While arguably a narrow definition, our measure is comparable across both time and country space.

Of course the specificity of this definition causes the omission of certain observations that some may consider to be de facto nation building. For example, from 1952 to 1977 the United States provided most of Brazil's military training and weaponry as discussed by Tollefson (1995). This military alliance coincided with the economic "Alliance for Progress," which increased U.S. aid to South American nations in order to strengthen ties between the two continents. Yet these years of joint U.S. military assistance and economic aid to Brazil do not involve nation building because Brazil was not in conflict. Rather we consider this an example of a politico-military alliance with the United States. Such alliances were indeed common throughout much of South America. While many nations have received economic aid with military assistance, if at least 100 battle-related deaths do not occur within a year, the episode is not considered a nation building episode.

Similarly, a nation in conflict that receives only economic aid does not join the group of nation building observations. For example, during the Sudanese Civil War severe droughts caused food shortages throughout the country. This prompted the United Nations and other donor countries to conduct Operation Lifeline Sudan, which brought 100,000 tons of food into Sudan (United Nations 1990). But since UN peacekeeping forces were not involved in the operation, this scenario does not fit our definition of nation building.

Finally, there are many instances when a country sends troops to a conflict-torn nation to mediate a war or to protect their interests abroad. For example, the multinational force in Lebanon, consisting of U.S. Marines and Navy SEALS, French paratroopers, Italian soldiers, and British soldiers, entered Lebanon in 1982 to oversee the withdrawal of the Palestine Liberation Organization and facilitate the restoration of the Lebanese government. While this operation resembles an attempt at nation building, the countries involved did not provide economic aid to Lebanon, so this episode is also not considered a nation building initiative.

While our definition of nation building might be considered strict, our data document over 200 separate episodes during conflict periods. Furthermore, our approach benefits from a clear and consistent quantitative treatment of defining nation building endeavors. Table 1 provides summary statistics for some of the primary variables used in the study.

B. Estimating Aid Flows

Inherently, economic aid data have a potential selection bias that is likely to cause an endogeneity problem. That is, countries that experience major economic difficulties, and therefore anemic growth, may be more (or less) likely to receive economic aid in the first place. An instrumental variables approach can help solve this endogeneity problem, where bilateral aid flows are first estimated, aggregated, and then used as instruments in the main regression. For the primary first-stage estimation, we follow Alesina and Dollar (2000) and regress the total aid given by a donor country to a recipient country in a particular year on both political affinity and colonial ties. Political affinity captures the notion that countries are more likely to donate to countries that are like-minded. (14) This political ally variable is proxied using UN voting similarity in a given year between the donor and the potential aid recipient (Voeten and Merdzanovic 2008). For the colonial linkages, an indicator variable is used to capture current and past colonies and the number of years of this colonization history. We extract this colonial history from the CIA World Factbook.

We also use alternative first-stage specifications that include an index of national capability for donors as an additional explanatory variable for bilateral aid flows. This index of economic capability, published by the Correlates of War project, appears to be a robust predictor of a country's provision of aid for any potential recipient. For each first-stage specification, aid amounts are aggregated and logged to produce a measure of predicted aid, which is then used as an instrument in the growth regressions. (15)

IV. RESULTS

Table 2 reports estimation results from the baseline model, as well as results from the augmented models with measures of conflict and post-conflict periods, economic aid, military assistance, and their interactions. All estimations include country- and year-specific fixed effects. Considering the first specification, we see that consistent with Mankiw, Romer, and Weil (1992), investment relative to GDP is strongly associated with per capital growth, whereas initial GDP levels and population measures appear to have negligible effects. Education also appears to have negligible growth effects; this is likely due to the fact that educational investments take longer to manifest their influence on GDP.

Looking at specification (4) in Table 2, in terms of conflict effects, growth suffers during conflict periods but rebounds during post-conflict periods. Perhaps more interesting are the aid-conflict cross terms. Here we see that economic aid is positively correlated with growth, and this aid coupled with military assistance correlates with even greater growth. However, this joint provision appears to be negatively correlated with growth both in instances of conflict and periods directly thereafter.

The analysis above raises a number of questions. The primary issue of course is endogeneity. All the variables used to construct our nation building measures are potentially endogenous with economic growth. Perhaps the thorniest relationship is that between economic aid and growth, because many studies suggest that aid tends not to be doled out in low-growth environments, and these are perhaps more prone to conflict. Are nation building activities primarily conducted in high-growth countries or regimes, or conducted mainly in those regions already most likely to succeed? If so, we are potentially giving too much credit to economic aid and military assistance in bolstering growth. Alternatively, are these types of assistance measures doled out to more troubled countries or regimes, even after the conflict is over? If so, we are potentially not giving enough credit to nation building endeavors in conflict or post-conflict scenarios. Our use of country-specific fixed effects can help address some but not all of these concerns.

A. Instrumenting Economic Aid

We perform a two-step estimation procedure to avoid potential endogeneity surrounding the provision of economic aid. Often aid is provided for geopolitical considerations (as opposed to strictly economic considerations). Therefore, we use such geopolitical factors as instruments for aid flows. In a similar manner to Alesina and Dollar (2000), we estimate bilateral aid flows using two types of geopolitical variables. The first measures the extent to which two countries are politically aligned. The data capture roll-call votes in the United Nations General Assembly from 1946 to 2008 (Voeten and Merdzanovic 2008). From this, Gartzke creates an "affinity" index which provides a metric reflecting the similarity on voting positions of pairs of countries (Gartzke 2010). The intent in using this index is to capture the idea that aid donors may prefer to contribute resources to like-minded regimes, or that aid may be used to punish or reward regimes for voting in particular ways (Carter and Stone 2010).

Furthermore, Alesina and Dollar (2000) and others posit that past colonial relations can be a strong motivator for current aid giving. The second type of variable, therefore, measures the colonial relationships between country pairs, capturing the number of years the aid giver has or had been a colonizer of the aid receiver. This colonial history is constructed using data from the CIA World Factbook. Finally, in certain specifications, we use a measure of the national capability of donors, published by the Correlates of War project, to provide aid as an additional explanatory variable (Singer, David, and Stuckey 1972). (16)

As this approach produces many observations with a zero observed for the dependent variable (slightly more than half of all country-pair year observations have no measurable aid flows), we estimate a Tobit model to address the censored nature of aid measures.

B. An IV Approach to Nation Building

Given the discussion above, the first step is to estimate the following:

(3) In (1 + [aid.sub.hj,t]) = [[beta].sub.h] + [[beta].sub.j] + [beta]'[x.sub.j,t] + [gamma]'[z.sub.hj,t] + [[epsilon].sub.hj,t]

where [aid.sub.hj,t] is the aid amount from OECD member h to recipient country j (in millions of 2008 U.S. dollars). [[beta].sub.h] and [[beta].sub.j] suggest the potential inclusion of OECD-donor and OECD-recipient fixed effects. [x.sub.j,t] contains the explanatory variables from the baseline model for aid recipient j, whereas [z.sub.hj,t] contains some of the bilateral variables mentioned above, which directly influences aid flows. Specifically, these variables are:

[z.sub.1,hj,t] = political affinity measure between countries h and j.

[z.sub.2,hj,t] = former colonizer indicator between aid giver h and receiver j.

[z.sub.3,hj,t] = current colonizer indicator between aid giver h and receiver j.

[z.sub.4,hj,t] = number of years former colonizer h had colonized j (since 1900).

[z.sub.5,hj,t] number of years current colonizer h has colonized j (since 1900).

[z.sub.6,h,t] = national capabilities index for aid giver h.

Results from this estimation are presented in Table 3. Echoing the findings of Alesina and Dollar (2000), the similarity of voting behavior between two nations is a positive predictor of aid giving and/or receiving. Colonial legacy also can help predict aid patterns, although this relationship appears to deteriorate slightly over time. Finally, we observe a positive and highly statistically significant relationship between the national capability of the donor country and its propensity to dole out economic aid.

Because there are different ways to specify the first stage, we use two of the four different specifications shown in Table 3 for constructing two separate aid estimates. For each specification, we sum the estimated aid flows across potential OECD donors for each recipient nation. That is, for estimated [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] values from the first-stage specification, we calculate

(4) In ([econaid.sub.j]) = ln (1 + [H.summation over (h=1)][x.sub.hj,t])

where [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII] and H is the total number of potential donors to country j. We can then replace the original aid measures with these summed estimated measures. (17)

Because there are different ways to specify the first stage, we use and show two of the six different specifications (second-stage findings are consistent across all first-stage specifications). A comparison of results when we instrument for aid flows and when we do not is presented in Table 4. First note that the coefficient on the instrumented aid variable ([[theta].sub.1]) dramatically falls to insignificance, ostensibly validating the concerns of some researchers that aid may flow to already relatively successful regions. However, as we discuss below, military aid and conflict regime variables are important controls in such growth regressions. The estimated economic aid-military aid cross effect remains positive and statistically significant no matter how we instrument for economic aid ([[alpha].sub.5]). This gives us a fortiori evidence that economic assistance with military assistance generally has positive growth effects.

V. GROWTH EFFECTS FROM NATION BUILDING

Wielding these coefficient estimates, we answer two fundamental questions: does aid affect growth, and does conditional aid affect growth? As we mention earlier, the latter question directly addresses our interpretation of growth effects from nation-building activities. We take each question in turn:

A. Does Economic Aid Affect Growth?

Consider again Equation (2). The partial derivative of [DELTA][y.sub.j,t] with respect to logged economic aid is as follows:

(5) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII].

As we can see from this expression, the interpretation of [[phi].sub.1] is the partial derivative of [DELTA][y.sub.j,t] with respect to logged economic aid when conflict = post - conflict = militaryaid = 0. A t-test for [[phi].sub.1] = 0 is a test of the null of no growth effects from aid only when there is no military aid or any conflict. This is a fairly restrictive case.

Rather, to test for no effects of aid on growth overall, we need to test if ([[phi].sub.1] [[alpha].sub.1], [[alpha].sub.2], [[alpha].sub.5], [[alpha].sub.6], [[alpha].sub.7]) = (0,0,0,0,0,0). That is, we need to test for joint significance, using for example an F test. (18) The null hypotheses of no growth effects from economic aid are always rejected. (19)

Our results demonstrate the importance of controlling for military aid and conflict variables when assessing the overall effects of economic aid on economic performance. This study suggests that such aid injections interact with military support and conflict regimes in important and nontrivial ways.

B. Does Conditional Economic Aid Affect Growth?

So if the growth effects from economic aid are nonzero, through which channel(s) do they operate? Is aid more or less effective when military assistance is also being given? How do these effects change during and after conflict? To answer these questions, we are essentially interested in the effects of economic aid conditional on the presence of military assistance ([a.sub.2]) and the presence or recent incidence of conflict ([c.sub.1] or [c.sub.2]). That is, we consider:

(6) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

which jointly assumes that military assistance is being provided and conflict is occurring, and

(7) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

which jointly assumes that military assistance is being provided and the country is in post-conflict. To test the significance of the above partial derivatives require linear restriction tests of the estimated coefficients. Such tests are necessary to gauge the net effects of aid given during different periods. (20)

Results from these linear restriction tests are provided in the top portion of Table 5. While in the uninstrumented case the net effect of economic aid in the presence of military aid and conflict appears negative, it is positive when economic aid is instrumented. Furthermore, without military assistance, economic aid does not appear to produce any growth effects either during conflict or directly after conflict. However, the net effects of economic aid assuming military aid is being given are negative (although not estimated with statistical significance). These linear restriction tests support our suggestion that nation building helps growth during conflict but not directly after conflict. At the very least, they suggest that economic aid in the presence of military assistance is more effective during conflict periods than post-conflict periods. Furthermore, while we demonstrate results only for instrumented 1, results for these linear restriction tests are similar for all six instrumentations.

How economically significant are these results? Consider the estimated effect on growth from joint economic aid and military assistance during conflict: 0.014. This implies that a doubling of economic aid during a period of military assistance and conflict results in a roughly 1% rise in overall growth rates. (21) Consider a country growing at a paltry 1% that is under conflict and receiving military assistance. A doubling of economic aid in this case would in effect double its rate of growth.

Given that we do not instrument for conflict regimes and military assistance, can we hang our hats on these results? We argue yes. First, as noted above, conflict itself appears to be negatively related to growth; if anything this potentially biases the estimated effect of nation building during conflict periods downward. As for military assistance, it is possible that such help only comes to countries already with strong growth potential. However, our results in Table 2 suggest that this is unlikely--military assistance is also negatively related to growth. Thus, we would argue that the estimated positive growth effects of nation building funds during conflict periods are fairly conservative.

C. Are There Complementarities between Different Aid Types?

A distinct but related question is whether economic aid and military assistance tend to complement each other, or if they tend to crowd each other out. In the context of this study, this is similar to inquiring over the sign of [[partial derivative].sup.2][DELTA]y/([partial derivative]ln (econaid) [partial derivative]military). Again these can be conditionally evaluated for periods of conflict ([c.sub.1] = 1) or post-conflict ([c.sub.1] = 2). In other words, we test:

(8) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

for potential complementarities between aid types during conflict, and

(9) [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]

for potential complementarities between aid types during post-conflict.

Results from these tests are shown at the bottom of Table 5. In general, there appear to be fairly strong complementarities between economic aid conditional on military assistance for all periods (based on estimates for [[alpha].sub.5]). Furthermore, these effects do not appear to diminish in the presence of conflict (based on estimates for [[alpha].sub.5] + [[alpha].sub.6]). This may indicate some complementarities in assistance, meaning that economic aid is more effective when it is buttressed with military assistance that can provide security. During post-conflict, however, the conditional effect of economic aid appears to in fact harm economic growth. These negative effects are not precisely measured, but still perhaps indicate a type of crowding out in that economic support may stymie the natural forces of post-conflict growth. In any case, it appears that the positive complementarities typically observed for economic aid and military assistance are greatly weakened directly after conflict periods.

The positive and significant marginal effect from economic aid conditional on military assistance during conflict may be driven by a number of factors. As the two types of aid appear to act as complements during conflict, they may together make other types of external investments more productive, increasing economic growth. It could be that military assistance provides the necessary security for economic aid to work properly, thereby improving the marginal effect of the economic aid on private investment and economic growth.

It is particularly in the post-conflict scenarios that the complementary nature of these two types of aid disappears. In post-conflict environments, this suggests that the security factor generated from the military assistance becomes less important for the productivity of economic aid. This lack of complementarity could be again driven by a number of factors. There may be less of a need for security during post-conflict, so it does not improve the productivity of economic aid. Or, perhaps the security of military assistance being provided is perceived negatively by the citizens in post-conflict scenarios, so it no longer improves the effectiveness of economic aid. This is particularly true if military efforts cause disruptions in other ways, or if it fails to acknowledge special community characteristics (see e.g., Berman, Shapiro, and Felter 2011).

There are important normative implications in this. Naturally, there are many reasons why one nation may wish to provide assistance of some form to another nation. In matters of per capita growth, however, it appears that a conflict-riddled nation is best served by a combination of military and economic support. After the conflict, a persisting military presence may help growth further; economic aid however should pull out and allow private growth forces to re-emerge on their own.

D. Military Aid Providers

Finally, we turn our attention to military aid, as questions of endogeneity may remain concerning the provision of military assistance. Of course most cases of military aid are not motivated expressly by economic concerns, but instead by needs to support government or rebel forces, perform evacuations, or patrol areas (this according to the providers of the International Military Intervention Dataset). These efforts may be thought to influence economic prosperity even if they were not directly motivated by such (or lack of such) prosperity. Still the endogeneity concern may remain, and we cannot perform a similar instrumental variable approach for military aid given that instances of military support are relatively rare and dollar aid amounts are not available. (22)

Rather, we split the military aid variable into different aid providers--the United States, nations other than the United States, and UN peacekeeping troops. We re-estimate Equation (2) still using the estimated aid measures but now using these more restrictive measures of military interventions one by one. The reason for doing this is straightforward. The military and strategic concerns of the United States arguably were and remain radically different from those of other countries. It thus stands to reason that the causal channels through which military aid is administered may differ between the different potential providers. This may be especially true for UN peacekeeping missions that may spring from very different motivations. Dobbins et al. (2008) argue that multilateral organizations such as the United Nations may have a different approach to nation building than single country actors. If growth itself influences certain potential military interventionists to provide support, we should expect very different results between these different military aid measures.

Results from these estimations are presented in the first three columns of Table 6. (23) Despite potential differences in motivation for military intervention, the growth effects from each type of joint provision are fairly similar. Specifically, in each case it appears that joint aid provisions are more impactful for growth during conflict periods than during post-conflict periods. Our estimates on the economic aid-military aid cross term ([[alpha].sub.5]) are always positive, whereas estimates on the economic aid-military aid-post-conflict cross term ([[alpha].sub.7]) are always negative, echoing our overall findings. While by no means a definitive statement of proof of causality, these findings do provide a fortiori evidence that joint aid provisions boost growth, with or without conflict.

Finally, we perform a similar exercise but now split the military aid variable into "low-level" military support and "high-level" military support (see Kisangani and Pickering 2008 for definitions and classifications). Roughly two-thirds of all our military intervention events are characterized as low level. Results from these estimates are presented in the final two columns of Table 6. Again qualitative findings remain consistent. Interestingly, the positive growth effects from joint aid provision (with or without conflict) appear to be considerably stronger with high-level military involvement. This makes sense--if we believe that aid provision produces positive effects for economic development, there is no good reason to expect positive growth effects from only nominal provisions of military support.

VI. CONCLUSIONS

Nation building operations occur for many varied reasons, including attempting to promote the security and stability of strategic regions, thwarting the spread of terrorism or nuclear weapons or abhorrent ideologies, protecting natural resource stockpiles, and promoting democracy. This study suggests that policy makers should consider the influence on economic growth and development as an important by-product of these endeavors.

Overall, this analysis has shown that during conflict nation building can help to increase the economic growth rate of a host nation. The effects are not extremely strong and not statistically significant in all specifications. Still, they suggest that a robust intervention of economic and military support may help an economy in the grips of war. Once the conflict concludes, the analysis suggests that growth prospects are strongest with continued military support and receding economic aid. Excessive aid can in fact hinder the natural rebuilding phase of a post-conflict nation. Studies which find no evidence that aid helps countries grow suggest that policy makers need to rethink the entire apparatus of aid (Rajan and Subramanian 2008). We suggest that an approach that simultaneously considers conflict and military aid is a fruitful part of such a rethink.

ABBREVIATIONS

GDP: Gross Domestic Product

OAS: Organization of American States

OAU: Organization for African Unity

doi: 10.1111/ecin.12148

APPENDIX A: DATA SOURCES

This project included a large data collection effort. While most of the variables have been modified from their original form, all of the data come from publicly available sources:

1. Penn World Tables: provides data on GDP per capita and investment share of GDP for 188 countries from 1950 to 2005.

2. World Bank World Development Indicators: provides data on population growth and education expenditure for 210 regions from 1960 to present.

3. Organization for Economic Co-operation and Development Creditor Reporting System: provides aid data for all 22 donor assistance countries which include Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Japan, Luxembourg, Netherlands, New Zealand, Norway, Portugal, Spain, Sweden, Switzerland, the United Kingdom, and the United States.

4. Uppsala Conflict Data Program-International Peace Research Institute (UCDP-PRIO) Armed Conflicts Dataset: includes presence of conflict within a country's territorial borders and number of battle deaths in a year during a certain conflict. The dataset defines a conflict as an armed dispute between at least two parties that results in at least 25 battle-related deaths in a year. One of the parties must be a government.

5. World Bank Project's Database: provides all grants by the World Bank, their recipient, and their target sector from 1948 to present. The dataset includes 10 sectors which were aggregated into 7 sectors.

6. United Nations Peacekeeping Operations Database: records every location and year of a United Nations peacekeeping operation since 1948.

7. International Military Intervention Dataset: records every instance when one nation intervenes over the international borders of another nation from 1946 to 2005, and categorizes the interventions by level of military involvement and purpose for military operation.

8. U.S. Overseas Loans and Grants: provides data on U.S. foreign military assistance and economic assistance from 1946 to 2005.

APPENDIX B: NATIONS IN SAMPLE

TABLE B1
Countries Included in Sample

Country                             Years

Afghanistan                       1960-2005
Albania                           1960-2005
Algeria                           1962-2005
Andorra                           1993-2005
Angola                            1982-2005
Antigua and Barbuda               1981-2005
Argentina                         1960-2005
Armenia                           1991-2005
Australia                         1960-2005
Azerbaijan                        1991-2005
Bahamas                           1973-2005
Bahrain                           1971-2005
Bangladesh                        1971-2005
Barbados                          1966-2005
Belarus                           1991-2005
Belgium                           1960-2005
Belize                            1981-2005
Benin                             1960-2005
Bolivia                           1960-2005
Botswana                          1966-2005
Brazil                            1960-2005
Brunei                            1984-2005
Bulgaria                          1972-2005
Burkina Faso                      1960-2005
Burundi                           1962-2005
Cambodia                          1960-2005
Cameroon                          1960-2005
Canada                            1960-2005
Cape Verde                        1975-2005
Central African Republic          1960-2005
Chad                              1960-2005
Chile                             1960-2005
China                             1960-2005
Colombia                          1960-2005
Comoros                           1975-2005
Republic of the Congo             1960-2005
Costa Rica                        1960-2005
Cote d'Ivoire                     1960-2005
Croatia                           1992-2005
Cuba                              1960-2005
Cyprus                            1960-2005
Czechoslovakia                    1960-1993
Czech Republic                    1993-2005
Democratic Republic of Congo      1963-2005
Denmark                           1960-2005
Djibouti                          1977-2005
Dominica                          1978-2005
Dominican Republic                1960-2005
Ecuador                           1987-2005
Egypt                             1960-2005
El Salvador                       1960-2005
Equatorial Guinea                 1968-2005
Eritrea                           1993-2005
Estonia                           1991-2005
Ethiopia                          1968-2005
Federated States of Micronesia    1991-2005
Fiji                              1970-2005
Finland                           1960-2005
France                            1960-2005
Gabon                             1960-2005
Gambia                            1965-2005
Georgia                           1991-2005
Germany                           1960-2005
Ghana                             1960-2005
Greece                            1960-2005
Grenada                           1974-2005
Guatemala                         1960-2005
Guinea-Bissau                     1980-2005
Guinea                            1960-2005
Guyana                            1966-2005
Haiti                             1960-2005
Honduras                          1960-2005
Hungary                           1960-2005
Iceland                           1960-2005
India                             1960-2005
Indonesia                         1960-2005
Iran                              1960-2005
Iraq                              1960-2005
Ireland                           1960-2005
Israel                            1960-2005
Italy                             1960-2005
Jamaica                           1962-2005
Japan                             1960-2005
Jordan                            1960-2005
Kazakhstan                        1991-2005
Kenya                             1963-2005
Kiribati                          1999-2005
Kuwait                            1961-2005
Kyrgyzstan                        1991-2005
Laos                              1981-2005
Latvia                            1991-2005
Lebanon                           1986-2005
Lesotho                           1963-2005
Liberia                           1960-2005
Libya                             1960-2005
Lithuania                         1991-2005
Luxembourg                        1960-2005
Macedonia                         1993-2005
Madagascar                        1967-2005
Malawi                            1964-2005
Malaysia                          1960-2005
Maldives                          1973-2005
Mali                              1960-2005
Malta                             1963-2005
Marshall Islands                  1991-2005
Mauritania                        1960-2005
Mauritius                         1968-2005
Mexico                            1960-2005
Moldova                           1991-2005
Mongolia                          1960-2005
Morocco                           1960-2005
Mozambique                        1975-2005
Myanmar (Burma)                   1960-2005
Namibia                           1990-2005
Nepal                             1965-2005
Netherlands                       1960-2005
New Zealand                       1960-2005
Nicaragua                         1960-2005
Niger                             1964-2005
Nigeria                           1960-2005
Norway                            1960-2005
Oman                              1963-2005
Pakistan                          1960-2005
Palau                             1994-2005
Panama                            1960-2005
Papua New Guinea                  1963-2005
Paraguay                          1960-2005
Peru                              1960-2005
Philippines                       1960-2005
Poland                            1960-2005
Portugal                          1965-2005
Qatar                             1971-2005
Romania                           1960-2005
Russia                            1981-2005
Rwanda                            1962-2005
Samoa                             1976-2005
Sao Tome and Principe             1975-2005
Saudi Arabia                      1966-2005
Senegal                           1960-2005
Seychelles                        1976-2005
Sierra Leone                      1961-2005
Singapore                         1965-2005
Slovakia                          1993-2005
Slovenia                          1992-2005
Solomon Islands                   1963-2005
Somalia                           1963-2005
South Africa                      1960-2005
South Korea                       1960-2005
Spain                             1960-2005
Sri Lanka                         1960-2005
St Kitts and Nevis                1983-2005
St Lucia                          1979-2005
St Vincent and the Grenadines     1979-2005
Sudan                             1960-2005
Suriname                          1975-1994
Switzerland                       1960-2005
Sweden                            1960-2005
Syria                             1961-2005
Taiwan                            1963-2005
Tajikistan                        1991-2005
Tanzania                          1961-2005
Thailand                          1960-2005
Togo                              1960-2005
Tonga                             1999-2005
Trinidad and Tobago               1962-2005
Tunisia                           1960-2005
Turkey                            1960-2005
Uganda                            1962-2005
Ukraine                           1991-2005
United Arab Emirates              1971-2005
United Kingdom                    1960-2005
United States of America          1960-2005
Uruguay                           1960-2005
Uzbekistan                        1991-2005
Vanatua                           1981-2005
Venezuela                         1960-2005
Vietnam                           1960-2005
Yemen                             1960-2005
Yugoslavia                        1963-2005
Zambia                            1964-2005
Zimbabwe                          1965-2005

APPENDIX C: CASES OF NATION BUILDING

TABLE C1
Cases of Nation Building with Multilateral Forces

Country               Year                    Conflict

Afghanistan        2001-2005    Afghanistan War as part of Global
                                  War on Terrorism
Algeria            1963-1964    Algerian-Morocco War

Bosnia and         1993-1996    Bosnian Civil War--Serbian-led
Herzegovina                       genocide during breakup from
                                  Yugoslavia

Central               1996      Army mutiny leading to ethnic
  African                         violence
  Republic

Chad               1980-1982    Chad Civil War, Chad-Libyan
                                  conflict over the Azouza strip

Republic of           1997      First Congolese Civil War between
  Congo                           Congolese military and paramilitary
                                  group

Cote d'Ivoire      2002-2005    Cote d'Ivoire Civil War between the
                                  Forces Nouvelles in north and the
                                  government in the south

Democratic         1978-1979    Shabba II--The Congolese National
  Republic                        Liberation Front invasion of Shaba
  of the                          region
  Congo (Zaire)

Democratic         1993-1994    Border spillovers from Rwandan
  Republic of                     genocide
  the Congo

El Salvador        1969-1974    Soccer War between Honduras and El
                                  Salvador

El Salvador        1979-1980    Civil Conflict

Eritrea               1998      Eritrean-Ethiopian War

Gabon                 1964      Internal coup

Guinea-Bissau         1998      Guinea-Bissau Civil War

Haiti                 2004      Rebels against Aristide's
                                  government provoke Civil War

Honduras           1969-1974    Soccer War with El Salvador
                                  concerning territorial border

Indonesia          2004-2005    Ethnic Conflict

Iraq                  1991      Gulf War

Iraq               2003-2005    War in conjunction with the Global
                                  War on Terrorism

Kuwait             1990-1991,   Iraq Kuwait Conflict
                      1994

Lebanon               1989      Lebanese Civil War

Liberia               2003      Second Liberian Civil War

Morocco            1963-1964    Algerian-Morocco War

Pakistan              2005      India-Pakistan Conflict

Papua New             1998      Bouganville Revolt by rebel forces
Guinea

Rwanda             1990, 1994   Rwandan Genocide

Sierra Leone          1997      Sierra Leone Civil War

Somalia            1992-1993    Somali Civil War

Sri Lanka             2005      Sri Lankan Civil War

Thailand              1962      Thai/Burmese border conflicts

Vietnam            1965-1972    Vietnam War

Country               Year                Nations Involved

Afghanistan        2001-2005    Australia, Canada, France, United
                                  Kingdom, United States
Algeria            1963-1964    Ethiopia and Mali under the
                                  auspices of the Organization of
                                  African Unity

Bosnia and         1993-1996    France, Germany, United States
Herzegovina                       under the auspices of NATO

Central               1996      France. United States
  African
  Republic

Chad               1980-1982    Organization of African Unity

Republic of           1997      France, United States
  Congo

Cote d'Ivoire      2002-2005    France, Germany, United Kingdom,
                                  United States

Democratic         1978-1979    Belgium, France. United Kingdom,
  Republic                        United States
  of the
  Congo (Zaire)

Democratic         1993-1994    Belgium, France, United States
  Republic of
  the Congo

El Salvador        1969-1974    Organization of American States

El Salvador        1979-1980    Organization of American States

Eritrea               1998      France, Germany, Italy.
                                  Netherlands, United Kingdom

Gabon                 1964      France, United States

Guinea-Bissau         1998      France, Portugal

Haiti                 2004      Canada, France, United States

Honduras           1969-1974    Organization of American States

Indonesia          2004-2005    Austria, Japan, Spain, United
                                  States

Iraq                  1991      France, United Kingdom, United
                                  States

Iraq               2003-2005    Australia, Denmark, Italy, Japan,
                                  Netherlands, Norway, Portugal,
                                  Spain, United Kingdom, United
                                  States

Kuwait             1990-1991,   France, Netherlands, United
                      1994        Kingdom, United States

Lebanon               1989      France, United States

Liberia               2003      France, United States

Morocco            1963-1964    Organization for African Unity

Pakistan              2005      Australia, United States

Papua New             1998      Australia, United States
Guinea

Rwanda             1990, 1994   Belgium, Canada, France, United
                                  States

Sierra Leone          1997      France, United Kingdom, United
                                  States

Somalia            1992-1993    Canada, France, Italy, United
                                  States

Sri Lanka             2005      United Kingdom, United States

Thailand              1962      Australia, United Kingdom, United
                                  States

Vietnam            1965-1972    Australia, United States

Notes: All conflict data and descriptions are from Uppsala
Conflict Program, Encyclopedia of Conflicts since World War
II, and the Armed Conflicts Database. All military
intervention data are from International Military
Intervention Dataset.

TABLE C2
Unilateral Cases of Nation Building

Country               Nation           Year             Conflict

Australia         Cambodia             1997       Coup staged by
                                                    Khmer Rouge rebels
Belgium           Democratic           1991       Civil War, mutiny
                    Republic of
                    the Congo
France            Cameroon             1960       Rebel uprisings
                                                    (UPC)
France            Central              1997       Military coup led
                    African                         by Cyriac Souke
                    Republic
France            Central            2003-2005    Rebel uprisings
                    African                         led by UFDR
                    Republic
France            Chad               1968-1992    Rebel forces
France            Chad               2004-2005    Civil War against
                                                    the FUCD
France            Comoros              1989       Coup staged by
                                                    presidential guard
France            Djibouti             1992       Civil War between
                                                    government and
                                                    FRUD
France            Gabon                1965       Military coup led
                                                    by Leon M'Ba
France            Mauritania         1977-1980    Civil war between
                                                    government and
                                                    POLISARIO
France            Morocco            1960-1962    Reconstruction
                                                    after independence
France            Morocco            1965-1976    Algerian-Moroccan
                                                    War and border
                                                    clash
France            Rwanda               1993       Rwandan Civil War
                                                    and genocide led
                                                    by FPR
France            Tunisia            1961-1962    Civil War started
                                                    by National
                                                    Liberation Army
Germany           Czechoslovakia     1968-1969    Cold War
Germany           Iran                 1991       Civil War staged
                                                    by People's
                                                    Mujahedin of Iran
                                                    (MEK)
Germany           Sudan                2004       Civil War rebel
                                                    factions include
                                                    JEM, SLM/A, NDA
Spain             Morocco              2002       Territorial
                                                    dispute over
                                                    island of Ceuta
United Kingdom    Kenya                1982       Civil War started
                                                    by Mau Mau
United Kingdom    Oman               1972-1977    Civil War between
                                                    government and
                                                    PFLO with help
                                                    from People's
                                                    Republic of Yemen
United Kingdom    Sierra Leone       1998-2002    Civil War, rebel
                                                    factions include
                                                    AFRC, Kamajros,
                                                    and RUF
United Kingdom    Yemen              1965-1966    Civil War over
                                                    southern areas by
                                                    FLOSSY
United States     Cambodia             1975       Civil War Khmer
                                                    Rouge, Cold War
United States     Cambodia             1997       Civil War rebel
                                                    factions include
                                                    FUNCINPEC and
                                                    Khmer Rougue
United States     Democratic        1965, 1967
                    Republic of
                    Congo
United States     Dominican            1961,      Civil War after
                    Republic         1965-1966      1962 elections
                                                    negated by
                                                    civilian junta
United States     El Salvador        1983-1988    Civil War between
                                                    government and CNL
United States     Guatemala            1987       Rebel factions
                                                    URNG
United States     Haiti              1994-1995    Operation Uphold
                                                    Democracy
United States     Haiti                2005       Urban warfare
                                                    between Haitian
                                                    police, former
                                                    Hatian military,
                                                    urban gangs, and
                                                    armed political
                                                    groups
United States     Kenya                1982       Military coup led
                                                    by Hezekiah Ochuka
United States     Kuwait               1996       Iraq-Kuqait
                                                    Conflict
United States     Laos               1961-1970    Civil War between
                                                    Laos government
                                                    and Pathet Lao,
                                                    Cold War
United States     Liberia            1990-1991    Civil War rebel
                                                    factions include
                                                    INPFL and NPFL
United States     Liberia           1996, 1998    Civil War rebel
                                                    factions include
                                                    INPFL and NPFL
United States     Morocco            1976-1978    Civil War led by
                                                    POLISARIO
United States     Nicaragua            1979       Civil War by rebel
                                                    faction FSLN
United States     Pakistan             2004       Rebel factions in
                                                    Baluchistan led by
                                                    the BLA
United States     Panama             1989-1990    Military Coup led
                                                    by Moises Giroldi
United States     Philippines          1989       Civil War
                                                    initiated by CPP
                                                    and military coup
                                                    led by Honasan,
                                                    Abenina, and Zumel
United States     Sierra Leone         1992       Civil War between
                                                    government and RUF
United States     Sierra Leone       2001-2002    Civil War rebel
                                                    factions include
                                                    RUF and WSB
United States     Somalia              1994       Civil War rebel
                                                    factions include
                                                    USC and SNA
United States     Sudan              1984-1985    Civil War
                                                    instigated by
                                                    SPLM/A
United States     Thailand           1966-1976    Civil War
                                                    instigated by CPT
United States     Tunisia            1961-1962    Bizerte Conflict
United States     Turkey               1986       Civil War rebel
                                                    faction includes
                                                    PKK
United States     Vietnam            1963-1964    Vietnam War before
                                                    other nations join
United States     Vietnam            1973-1974    Vietnam War before
                                                    and after allied
                                                    nations pull out
                                                    of war
United Nations    Afghanistan          1998       Civil War in
                                                    Kashmir provinces
United Nations    Algeria            1991-2003    Civil War rebel
                                                    factions include
                                                    Takfir wa'l Hijra,
                                                    AIS, GIA
United Nations    Angola            1991-1993,    UNITA
                                    1995, 1998
United Nations    Bosnia and         1996-2002    Bosnian War,
                    Herzegovina                     Bosnian-Serbian
                                                    Conflict, genocide
United Nations    Burundi              2004       Civil War rebel
                                                    factions include
                                                    CNDD, Frolina,
                                                    Palipehutu-FNL
United Nations    Cambodia             1993       Cambodian-
                                                    Vietnamese
                                                    Conflict
United Nations    Central African    1999-2000    Military Coup by
                    Republic                        Cyriac Souke
United Nations    Croatia            1994-2002    Bosnian War

United Nations    Cyprus             1974-1979    Turkish invasion
                                                    of Cyprus
United Nations    Democratic         1960-1964    Civil War
                    Republic of
                    the Congo
United Nations    Democratic         2002-2005    Civil War rebel
                    Republic of                     factions include
                    the Congo                       MLC, RCD, RCD-ML
United Nations    Egypt              1967-1978    Egyptian-Israeli
                                                    Conflict
United Nations    El Salvador 7     1991, 1993,   Civil War led by
                                       1995         the FMLN
United Nations    Ethiopia           2000-2004    Eritrean-
                                                    Ethiopian War
United Nations    Georgia            1994-1998    War in Abkhazia,
                                                    "Frozen Conflict"
United Nations    Guatemala          1992,1997    URNG
United Nations    Haiti             1994-1996,    Civil War
                                       2005
United Nations    India              1961-1981    Indio-Pakistani
                                                    Wars
United Nations    Iran                 1988       Iran-Iraq War
United Nations    Iraq                 1988       Iran-Iraq War
United Nations    Israel             1960-1975    Egyptian-Israeli
                                                    Conflict, Israeli-
                                                    Syrian Conflict,
                                                    Israeli-Jordan
                                                    Conflict, Israeli-
                                                    Lebanon Conflict
United Nations    Jordan               1967       Israeli-Jordan
                                                    Conflict
United Nations    Jordan               1972       Israeli-Jordan
                                                    Conflict
United Nations    Lebanon           1977, 1978    Israeli-Lebanon
                                                    Conflict
United Nations    Lebanon            1993-1995    Israeli-Lebanon
                                                    Conflict
United Nations    Liberia            2004-2005    Second Liberian
                                                    Civil War led by
                                                    LURD and Movement
                                                    for Democracy in
                                                    Liberia
United Nations    Morocco            1991-1994    Territorial
                                                    dispute with
                                                    Polisario Front
                                                    over Saharawi Arab
                                                    Democratic
                                                    Republic
United Nations    Mozambique         1992-1994    Civil War against
                                                    Renamo Faction
United Nations    Nicaragua          1991-1992    Civil War with
                                                    FLAA
United Nations    Pakistan          1964-1982,    Indio-Pakistani
                                     1984-1985      Wars
United Nations    Sierra Leone       1998-2000    Civil War
United Nations    Sudan                2005       Civil War SPLM/A
                                                    and genocide
United Nations    Syria             1972-1982,    Israeli-Syrian
                                     1984-1985      Conflict
United Nations    Tajikistan         1996-2000    Ethinic War and
                                                    rebel factions
                                                    under United Tajik
                                                    Opposition
United Nations    Uganda             1993-1994      Civil War

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(1.) This definition of nation building follows from Creasey, Rahman, and Smith (2012). It differs from other definitions, perhaps most distinctly from Alesina and Reich (2013), where they define it as policies intended to foster homogeneity within populations. Our approach focuses more on the foreign interventionist aspects of nation building.

(2.) See Traub (2010).

(3.) For a full list of nation building operations, see Tabled.

(4.) The conflict-related costs in Afghanistan and Iraq since 2001, have totaled to roughly 1.3 trillion dollars for the United States alone--see Belasco (2011).

(5.) See Appendix A for a full description of military financial assistance.

(6.) Rajan and Subramanian (2008) and Hansen and Tarp (2001) discuss the potential effects on total factor productivity from the allocation of foreign aid.

(7.) See the recent meta-analysis of the study by Mekasha and Tarp (2011) which suggests that aid has generally been good for growth.

(8.) Here we are assuming that capital depreciation and total factor productivity are similar across nations and therefore absorbed into the time-specific effects [[zeta].sub.j,t].

(9.) We also included a measure of conflict intensity (captured by number of battle deaths), which not surprisingly tends to be negatively related to growth. Inclusion of this variable does not alter our findings in any meaningful way.

(10.) The UCDP-PRIO Armed Conflict Dataset uses a threshold of 25 battle deaths to define conflict. We utilize a larger threshold to capture those situations where conflict is strong enough to affect macroeconomic output. Using a lower threshold however does not alter our qualitative findings in any meaningful way.

(11.) This is a convention suggested by Collier and Hoeffler (2002).

(12.) From 1946 to 1988 Pearson and Baumann (1993). From 1989 to 2005 Kisangani and Pickering (2008).

(13.) Due to data restrictions, the nation building includes only observations in which the Organization for Economic Cooperation and Development's (OECD) 22 Donor Assistance Countries (DAC), the United Nations, the Organization for African Unity (OAU), the North-Atlantic Treaty Organization, or the Organization of American States (OAS) execute the construction. For a full list of nation building operations, see Tables C1 and C2.

(14.) Also see Barro and Lee (2005) for discussion of IMF loan provision.

(15.) This procedure is similar to the one implemented by Frankel and Romer (1999). That article uses geographic instruments to identify the causal effects of trade using a similar two-stage approach of estimation and aggregation. Specifically, the authors first estimate a bilateral trade model and aggregate the predicted trade values for each country. They then use these predicted values to estimate country-level growth in per capita GDP.

(16.) This index contains six factors pertaining to each potential donor: total population, urban population, iron and steel production, energy consumption, military personnel, and military expenditures. The measure provides information on the potential of the country to give aid to any region.

(17.) The aggregation of instruments makes standard error calculations extremely complicated, so all results in Table 4 use pair-clustered bootstrapped standard errors. This procedure re-samples the clusters with replacement from the original sample. This is the most popular bootstrapping approach for panel data, although there are a number of alternative possibilities (Cameron, Gelbach, and Miller 2008). Ader, Mellenbergh, and Hand (2008) recommend the bootstrap procedure for situations when the theoretical distribution of a statistic of interest is complicated or unknown, as is our case due to the summative nature of our aid measures. This procedure roughly doubles the errors from uncorrected standard error estimates.

(18.) The preceding discussion applies the general logic by Balli and Sorensen (2013) on how to interpret single coefficients in the presence of interaction effects.

(19.) For all instruments used, tests produce p values less than 0.001.

(20.) As an example, if economic aid in general produces more growth, while aid provided specifically during times of conflict diminishes growth, the net effect of aid during conflict could well be zero.

(21.) To see this, consider that [y.sub.t+T] - [y.sub.t] = [[beta].sub.0] + [[beta].sub.1][x.sub.t] can be rewritten as [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]. Thus, if [x.sub.t] increases by factor F, the ratio [y.sub.t+T]/[y.sub.t] increases by a factor of [MATHEMATICAL EXPRESSION NOT REPRODUCIBLE IN ASCII]. So if F = 2, [y.sub.t+T]/[y.sub.t], increases by a factor of [2.sup.0.014] [approximately equal to] 1.01. or 1%.

(22.) Roughly 20% of all military interventions in the sample include the "protection of economic interests" as a stated objective. Of course the precise nature of this objective remains unclear (whose economic interest is being protected?), and we also redo exercises excluding this form of military intervention. Results (not reported) do not alter in any meaningful way.

(23.) The full set of results of interaction tests are not reported but are available on request.

ELLYN CREASEY, AHMED S. RAHMAN and KATHERINE A. SMITH *

* The views expressed in this paper are solely those of the authors and should not be interpreted as reflecting the views of the U.S. Department of Defense.

Creasey: Ensign, U.S. Navy, Department of Economics, U.S. Naval Academy, Annapolis, MD 21402. Phone 410-2936880, Fax 410-293-6899, E-mail eacreasey@gmail.com

Rahman: Associate Professor, Department of Economics, U.S. Naval Academy, Annapolis, MD 21402. Phone 410293-6897, Fax 410-293-6899, E-mail rahman@usna.edu

Smith: Associate Professor, Department of Economics, U.S. Naval Academy, Annapolis, MD 21402. Phone 4102936882, Fax 2406026718, E-mail ksmith@usna.edu

TABLE 1
Summary Statistics

                                  No. of
                               Observations     Average       SD

Per Capita GDP (2008 $)
  Overall                          7,126        8575.7     10857.6
  Between                         n = 184                   9939.6
  Within                      [bar.T] = 38.7                4372.9
Investment (share of GDP)
  Overall                          7,126          21.2        13.3
  Between                         n = 184                     11.5
  Within                      [bar.T] = 38.7                   6.8
Education (average years of
    schooling)
  Overall                          7.126           9.3         5.9
  Between                         n = 184                      5.4
  Within                      [bar.T] = 38.7                   2.3
Population Growth (annual)
  Overall                          8,190            .019       0.018
  Between                         n = 184                      0.012
  Within                      [bar.T] = 44.5                   0.012
  Conflict (binary)
  Overall                          8,667           0.085       0.29
  Between                         n = 184                      0.17
  Within                      [bar.T] = 47.1                   0.23
Post-conflict (binary)
  Overall                          8,667           0.053       0.22
  Between                         n = 184                      0.07
  Within                      [bar.T] = 47.1                   0.21
Economic Aid (mil. 2008 $)
  Overall                          7,923         239.1       603.2
  Between                         n = 178                    421.8
  Within                      [bar.T] = 44.5                 427.5
Military Aid (binary)
  Overall                          7,923           0.070       0.25
  Between                         n = 178                      0.15
  Within                      [bar.T] = 44.6                   0.20
Instrumented Economic Aid
    (mil. 2008 $)
  Overall                          8,667          53.4       123.8
  Between                         n = 184                     98.9
  Within                      [bar.T] = 47.1                  71.8

                                Min        Max

Per Capita GDP (2008 $)
  Overall                     153.4     111622.8
  Between                     559.7      62754.2
  Within
Investment (share of GDP)
  Overall                     -18.8        105.6
  Between                       3.4         61.5
  Within
Education (average years of
    schooling)
  Overall                       0           24.6
  Between                       0.91        22.1
  Within
Population Growth (annual)
  Overall                      -0.55         0.48
  Between                      -0.005        0.085
  Within
  Conflict (binary)
  Overall                       0            1
  Between                       0            1
  Within
Post-conflict (binary)
  Overall                       0            1
  Between                       0            0.34
  Within
Economic Aid (mil. 2008 $)
  Overall                       0        24517.4
  Between                       0         3401.2
  Within
Military Aid (binary)
  Overall                       0            1
  Between                       0            0.67
  Within
Instrumented Economic Aid
    (mil. 2008 $)
  Overall                       0         1590.3
  Between                       0          732.1
  Within

Notes: GDP and investment data come from the Penn World Tables
(2009). Education expenditure shares of GDP and population growth
rates come from the World Bank Development Indicators (2009).
Economic aid data come from the Organization for Economic Cooperation
and Development's Creditor Reporting System (OECD CRS, 2007) and the
World Bank Projects Database (2008). The military assistance data
come from the International Military Intervention Dataset. The joint
Uppsala Conflict Data Program and International Peace Research
Institute (UCDP-PRIO) Armed Conflict Dataset (2009) provides all
conflict-related data. Conflict is a binary variable that captures if
a country incurs at least 100 battle-related deaths within time
period t. Post-conflict indicates whether a conflict occurred within
the preceding 3 years.

TABLE 2
Fixed Effects Estimation with Economic Aid and Conflict Measures

                                         (1)             (2)

ln(econaid)                            --               0.008 ***
                                                       (0.003)
conflict                               -0.003           0.0006
                                       (0.010)         (0.044)
post--conflict                          0.005          -0.003
                                       (0.012)         (0.035)
ln(econaid) * conflict                 --               0.00003
                                                       (0.007)
ln(econaid) * post                     --               0.002
                                                       (0.006)
military                               --              --

military * conflict                    --              --

military * post                        --              --

ln(econaid) * military                 --              --

ln(econaid) * military * conflict      --              --

ln(econaid) * military * post          --              --

                                       -0.010          -0.007
                                       (0.009)         (0.010)
ln(investment/GDP)                      0.044 ***       0.046 ***
                                       (0.017)         (0.015)
ln(education/GDP)                      -0.009          -0.012
                                       (0.007)         (0.008)
ln(pop. growth)                        -0.222          -0.201
                                       (0.426)         (0.406)
No. of observations                     6,162            5,287
No. of countries                      176              155
[R.sup.2] (within)                      0.07            0.07
[R.sup.2] (between)                     0.09            0.02
[R.sup.2] (overall)                     0.07            0.06

                                         (3)             (4)

ln(econaid)                            --               0.008 ***
                                       --              (0.003)
conflict                               -0.012          -0.042 *
                                       (0.008)         (0.024)
post--conflict                          0.002          -0.003
                                       (0.011)         (0.035)
ln(econaid) * conflict                 --               0.006
                                                       (0.004)
ln(econaid) * post                     --               0.001
                                                       (0.002)
military                               -0.013          -0.072 *
                                       (0.023)         (0.042)
military * conflict                     0.057           0.332 ***
                                       (0.047)         (0.101)
military * post                         0.020           0.173
                                       (0.049)         (0.113)
ln(econaid) * military                 --               0.011 **
                                                       (0.005)
ln(econaid) * military * conflict      --              -0.050 ***
                                                       (0.014)
ln(econaid) * military * post          --              -0.029 **
                                                       (0.014)
                                       -0.009          -0.006
                                       (0.009)         (0.011)
ln(investment/GDP)                      0.044 ***       0.045 ***
                                       (0.017)         (0.017)
ln(education/GDP)                      -0.009          -0.011
                                       (0.009)         (0.008)
ln(pop. growth)                        -0.204          -0.155
                                       (0.312)         (0.456)
No. of observations                      6,162          5,287
No. of countries                       176            155
[R.sup.2] (within)                      0.07            0.08
[R.sup.2] (between)                     0.10            0.03
[R.sup.2] (overall)                     0.07            0.07

Notes: Dependent variable is ln[y.sub.j](t + T)-ln([y.sub.j](t)).
Figures in parentheses are clustered bootstrapped standard errors.
Year effects not reported. Economic aid is in millions of 2008
dollars. Military is a binary variable that indicates whether or not
military aid is being given. Conflict is a binary variable that
captures if a country incurs at least 100 battle-related deaths
within time period

t. Post-conflict indicates whether a conflict occurred within the
preceding 3 years.

*** Significant at 1%; ** significant at 5%; * significant at 10%.

TABLE 3
First Stage Tobit Estimation of Economic Aid Flows with Donor Fixed
Effects

                                           (1)             (2)

UN voting [similarity.sub.ij]              0.36 ***        0.64 ***
                                          (0.03)          (0.03)
Former colonizer [indicator.sub.ij]       --              --

Current colonizer                         --              --
  [indicatory.sub.ij]
Former years of                           --              --
  [colonization.sub.ij]
Current years of                          --              --
  [colonization.sub.ij]
Donor national capabilities               --              --
  [index.sub.ij]
ln([GDP.sub.j])                            0 40            0 73
                                          (0.004)         (0.08)
ln([GDP.sub.j]/[population.sub.j])        -0.93 ***       -1.00 ***
                                          (0.009)         (0.07)
ln([investment.sub.j/[GDP.sub.j])          0.30 ***        0.25 ***
                                          (0.014)         (0.02)
ln([education.sub.j/[GDP.sub.j])           0.001          -0.23 ***
                                          (0.01)          (0.04)
ln([pop. growth.sub.j])                    5.64 ***      213 ***
                                          (0.41)          (0.41)
No. of observations                        76,068          76,068
Donor countries                           22              22
Donor fixed effects                         Yes             Yes
Recipient fixed effects                     No              Yes
Pseudo [R.sup.2]                           0.22            0.29

                                           (3)            (4)

UN voting [similarity.sub.ij]              0.45 ***     0.67 ***
                                          (0.03)       (0.03)
Former colonizer [indicator.sub.ij]        3.43 ***     3.38 ***
                                          (0.06)       (0.05)
Current colonizer                          6.30 ***     7.80 ***
  [indicatory.sub.ij]                     (2.72)       (2.37)
Former years of                           -0.03 ***    -0.029 ***
  [colonization.sub.ij]                   (0.001)      (0.001)
Current years of                          -0.03        -0.06 *
  [colonization.sub.ij]                   (0.04)       (0.03)
Donor national capabilities               --           --
  [index.sub.ij]
ln([GDP.sub.j])                            0.41 ***     0 71
                                          (0.004)      (0.07)
ln([GDP.sub.j]/[population.sub.j])        -0.92 ***    -0.98 ***
                                          (0.009)      (0.07)
ln([investment.sub.j/[GDP.sub.j])          0.29         0.24 ***
                                          (0.01)       (0.02)
ln([education.sub.j/[GDP.sub.j])           0.02 *      -0.19 ***
                                          (0.013)      (0.04)
ln([pop. growth.sub.j])                    5.62 ***     2 17
                                          (0.39)       (0.39)
No. of observations                        76,068       76,068
Donor countries                           22           22
Donor fixed effects                         Yes          Yes
Recipient fixed effects                     No           Yes
Pseudo [R.sup.2]                           0.22         0.31

                                           (5)             (6)

UN voting [similarity.sub.ij]              0.06 **         0.22 ***
                                          (0.03)          (0.03)
Former colonizer [indicator.sub.ij]        3.33 ***        3 29
                                          (0.06)          (0.05)
Current colonizer                          5.75 **         7.22 ***
  [indicatory.sub.ij]                     (2.69)          (2.34)
Former years of                           -0.02 ***       -0.02 ***
  [colonization.sub.ij]                   (0.001)         (0.001)
Current years of                          -0.03           -0.05
  [colonization.sub.ij]                   (0.03)          (0.03)
Donor national capabilities               45.35 ***      427 ***
  [index.sub.ij]                          (1.13)          (1.01)
ln([GDP.sub.j])                            0 41            0.61 ***
                                          (0.004)         (0.07)
ln([GDP.sub.j]/[population.sub.j])        -0 90           -0.89 ***
                                          (0.009)         (0.07)
ln([investment.sub.j/[GDP.sub.j])          0.30 ***        0 24
                                          (0.01)          (0.02)
ln([education.sub.j/[GDP.sub.j])           0.03 **        -0.11 **
                                          (0.013)         (0.04)
ln([pop. growth.sub.j])                    5.45 ***        2.25 ***
                                          (0.39)          (0.39)
No. of observations                        76,068          76,068
Donor countries                           22              22
Donor fixed effects                         Yes             Yes
Recipient fixed effects                      No             Yes
Pseudo [R.sup.2]                           0.23            0.32

Notes: Dependent variable is logged total aid given by a donor
country to a recipient country in a particular year. Figures in
parentheses are standard errors. Donor fixed, recipient fixed, and
year effects not reported.

*** Significant at 1%; "significant at 5%; *significant at 10%.

TABLE 4
Fixed Effects Estimation of Economic Aid and Conflict Measures
with Instruments

                                    Noninstrumented   Instrumented 1

ln(econaid)                             0.008 ***         0.00003
                                       (0.003)           (0.007)
conflict                               -0.042 *          -0.011
                                       (0.024)           (0.02)
post-conflict                          -0.003            -0.003
                                       (0.035)           (0.014)
ln(econaid) * conflict                  0.006             0.0018
                                       (0.004)           (0.003)
ln(econaid) * post                      0.001             0.002
                                       (0.002)           (0.003)
military                               -0.072 *          -0.05
                                       (0.042)           (0.035)
military * conflict                     0.332 ***         0.033
                                       (0.101)           (0.04)
military * post                         0.173             0.11
                                       (0.113)           (0.07)
ln(econaid) * military                  0.011 **          0.014 **
                                       (0.005)           (0.007)
ln(econaid) * military * conflict      -0.050 ***         0.002
                                       (0.014)           (0.003)
ln(econaid) * military * post          -0.029 **         -0.036 **
                                       (0.014)           (0.018)
ln([y.sub.j](t))                       -0.006            -0.006
                                       (0.010)           (0.009)
ln(investment/GDP)                      0.045 ***         0.045 ***
                                       (0.017)           (0.018)
ln(education/GDP)                      -0.011            -0.007
                                       (0.008)           (0.009)
ln(pop. growth)                        -0.155            -0.228
                                       (0.456)           (0.42)
No. of observations                     5,287              5,290
No. of countries                      155               155
[R.sup.2] (within)                      0.08              0.07
[R.sup.2] (between)                     0.03              0.10
[R.sup.2] (overall)                     0.07              0.07

                                    Instrumented 2

ln(econaid)                            -0.0006
                                       (0.005)
conflict                               -0.014
                                       (0.02)
post-conflict                          -0.003
                                       (0.02)
ln(econaid) * conflict                  0.002
                                       (0.004)
ln(econaid) * post                      0.002
                                       (0.004)
military                               -0.048
                                       (0.032)
military * conflict                     0.033
                                       (0.037)
military * post                         0.107
                                       (0.07)
ln(econaid) * military                  0.013 **
                                       (0.006)
ln(econaid) * military * conflict       0.002
                                       (0.004)
ln(econaid) * military * post          -0.033 *
                                       (0.018)
ln([y.sub.j](t))                       -0.007
                                       (0.009)
ln(investment/GDP)                      0.045 ***
                                       (0.018)
ln(education/GDP)                      -0.007
                                       (0.007)
ln(pop. growth)                        -0.226
                                       (0.39)
No. of observations                      5,290
No. of countries                      155
[R.sup.2] (within)                      0.07
[R.sup.2] (between)                     0.10
[R.sup.2] (overall)                     0.07

Notes: Dependent variable is ln[y.sub.j](t + T)--ln[y.sub.j](t)).
Figures in parentheses are clustered bootstrapped standard errors.
Economic aid is in millions of 2008 dollars. Military is a binary
variable that indicates whether or not military aid is being given.
Conflict is a binary variable that captures if a country incurs at
least 100 battle-related deaths within time period t. Post-conflict
indicates whether a conflict occurred within the preceding 3 years.

*** Significant at 1%; ** significant at 5%; * significant at 10%.

TABLE 5
Interpreting the Interactions between Economic
Aid and Military Aid

                                     Noninstrumented   Instrumented 1
Marginal effects of economic
  aid on growth ([partial
    derivative][DELTA]y/
    [partial derivative]ln
  (econaid)) conditional on
  No military aid and conflict          0.014 ***          0.003
  [MATHEMATICAL EXPRESSION
  NOT REPRODUCIBLE IN ASCII]            (.002)            (.675)
  No military aid and                   0.009 **           0.006
  post-conflict [MATHEMATICAL
  EXPRESSION NOT REPRODUCIBLE
  IN ASCII]                              (.011)            (.338)
  Military aid and conflict             -0.026 *          0.014 **
  [MATHEMATICAL EXPRESSION NOT
  REPRODUCIBLE IN ASCII]                 (.062)            (.05)
  Military aid and                       -0.009            -0.018
  post-conflict                           (.49)            (.17)
  [MATHEMATICAL EXPRESSION NOT
  REPRODUCIBLE IN ASCII]

Complements or Substitutes
  [[[partial derivative].sup.2]
    [DELTA]y/[partial derivative]
    ln(econaid)[partial derivative]
    military]
  conditional on
  Peacetime [[[??].sub.5]]               0.011 **          0.014 **
                                         (.043)            (.05)
  Conflict [[[??].sub.5] +
    [[??].sub.6]]                       -0.040 ***        0.015 ***
                                         (.003)            (.01)
  Post-conflict [[[??].sub.5] +
    [[??].sub.7]]                        -0.018           -0.021 *
                                          (.16)            (.10)

Notes: All estimates derived from linear restriction tests
of estimates from Table 4. Each specific linear restriction
is provided in brackets. Figures in parentheses are p
values. All standard errors are bootstrapped. Economic aid
is in millions of 2008 dollars. Military is a binary
variable that indicates whether or not military aid is being
given. Conflict is a binary variable that captures if a
country incurs at least 100 battle-related deaths within
time period t. Post-conflict indicates whether a conflict
occurred within the preceding 3 years.

*** Significant at 1%; ** significant at 5%; * significant
at 10%.

TABLE 6
Fixed Effects Estimation of Aid and Conflict Measures with
Instruments Alternative Definitions of Military Aid

                                             Non-US          UN
                                US Mil        Mil       Peacekeeping

In(econaid)                   -0.001        0.00009      -0.001
                              (0.004)      (0.004)       (0.004)
conflict                      -0.01        -0.01         -0.01
                              (0.01)       (0.01)        (0.01)
post-conflict                  0.01        -0.001        -0.001
                              (0.01)       (0.01)        (0.014)
ln(econaid) * conflict         0.001        0.003         0.002
                              (0.002)      (0.002)       (0.002)
ln(econaid) * post            -0.002        0.0008       -0.0006
                              (0.003)      (0.003)       (0.003)
military                       0.023       -0.063 ***    -0.044 *
                              (0.043)      (0.015)       (0.022)
military * conflict           -0.01         0.037 **      0.034 **
                              (0.04)       (0.018)       (0.016)
military * post                0.075        0.112 ***     0.062 ***
                              (0.062)      (0.031)       (0.024)
ln(econaid) * military         0.011        0.012 ***     0.011 **
                              (0.010)      (0.004)       (0.005)
ln(econaid) * military *       0.007       -0.008        -0.003
  conflict                    (0.011)      (0.006)       (0.004)
ln(econaid) * military *      -0.042 ***   -0.031 ***    -0.012 *
  post                        (0.017)      (0.008)       (0.0069)
ln([y.sub.j](t))              -0.007       -0.008        -0.008
                              (0.006)      (0.006)       (0.006)
ln(investment/GDP)             0.047 ***    0.046 ***     0.046 ***
                              (0.004)      (0.004)       (0.004)
ln(education/GDP)             -0.008       -0.008        -0.008
                              (0.004)      (0.004)       (0.004)
lnfpop. growth)               -0.23 **     -0.21 **      -0.18 *
                              (0.10)       (0.10)        (0.10)
No. of observations             5,290        5,290         5,290
No. of countries             155          155           155
[R.sup.2] (within)             0.07         0.07          0.07
[R.sup.2] (between)            0.10         0.09          0.09
[R.sup.2] (overall)            0.07         0.07          0.07

                            Low-Level    High-Level
                             Military     Military

In(econaid)                  -0.0009      -0.0006
                             (0.004)      (0.004)
conflict                     -0.01        -0.005
                             (0.01)       (0.01)
post-conflict                 0.006        0.005
                             (0.013)      (0.012)
ln(econaid) * conflict        0.003        0.0003
                             (0.002)      (0.002)
ln(econaid) * post            0.0001      -0.001
                             (0.003)      (0.003)
military                     -0.022       -0.147 ***
                             (0.017)      (0.037)
military * conflict           0.052 ***    0.111 ***
                             (0.019)      (0.035)
military * post               0.090 ***    0.186 ***
                             (0.035)      (0.043)
ln(econaid) * military        0.008 *      0.037 ***
                             (0.0048)     (0.01)
ln(econaid) * military *     -0.007        0.003
  conflict                   (0.006)      (0.011)
ln(econaid) * military *     -0.035 ***   -0.046 ***
  post                       (0.009)      (0.014)
ln([y.sub.j](t))             -0.008       -0.007
                             (0.006)      (0.006)
ln(investment/GDP)            0.046 ***    0.046 ***
                             (0.004)      (0.004)
ln(education/GDP)            -0.008       -0.007
                             (0.004)      (0.004)
lnfpop. growth)              -0.19 *      -0.26 ***
                             (0.10)       (0.10)
No. of observations            5,290        5,290
No. of countries            155          155
[R.sup.2] (within)            0.07         0.08
[R.sup.2] (between)           0.10         0.09
[R.sup.2] (overall)           0.07         0.07

Notes: Dependent variable is ln [y.sub.j](t +
T)-ln([y.sub.j](t)) Figures in parentheses are clustered
standard errors. Economic aid is in millions of 2008
dollars. Conflict is a binary variable that captures if a
country incurs at least 100 battle-related deaths within
time period t. Post-conflict indicates whether a conflict
occurred within the preceding 3 years.

*** Significant at 1%; ** significant at 5%; * significant
at 10%.