Wednesday, May 1, 2013

Aid and the Rise and Fall of Conflict in the Muslim World

New draft by Ahmed and WerkerThe conflict following the Arab Spring is not the first wave of civil war in the Muslim world in recent time. From the mid-1980s to the end of the century, an average of one in ten predominantly-Muslim countries experienced violent civil war in any given year. We provide a partial explanation for this statistic: a foreign aid windfall to poor, non-oil producing Muslim countries during the twin oil crises of the 1970s allowed the recipient states to stave off rebellion. When oil prices fell in the mid-1980s, the windfall ended, and the recipient countries experienced a significant uptick in civil war. We test this hypothesis using a natural experiment of oil price changes which favored Muslim countries over non-Muslim countries. We then construct a formal model consistent with the stylized facts of this historical episode: oil-rich donors are generous according to the price of oil; and recipients are peaceful with no aid or high levels of aid, and otherwise experience civil war. The model generates further predictions which are consistent with the data.

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