The Differential Effects of Development Aid and Democracy Aid on Conflict Alleviation

Abstract

How effective is aid in reducing conflicts? Are there any differential effects of development aid and democracy aid? This study builds on the neo-liberal theory of inter-democratic peace and that economic development leads to democratic transition. It uses a fixed-effects model with data from the United States Agency for International Development (USAID) and Correlates of War (COW) project to answer these questions. The results show that economic development aid is more effective than democracy aid to promote democracy and reduce conflict levels. Three policy recommendations are given: 1) In determining aid amounts for recipient countries, the focus should be on overall economic performance rather than structural democracy improvement; 2) In order to promote conflict alleviation, the emphasis should be on economic progress rather than on conflict alternatives themselves; and 3) to address the principal-agent problem, the monitoring mechanisms should be simplified.