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Foreign Aid Allocation And Conflicts Within Least Developed Countries

in Afghan Business

Foreign Aid Allocation And Conflicts Within Least Developed Countries

In Least Developed Countries (LDCs), how should foreign aid as Official Development Assistance (ODA) be directed in order to decrease the instances of conflict within on-going conflict countries? Overseas foreign aid remains the largest source of financing for LDCs. However, in economic literature, little conclusive empirical evidence exists to support the pro-growth effects from development assistance. Moreover, little economic literature exists on studying the LDCs as a category in an attempt to identify commonalities between them which may explain why many of them continue to remain in this category despite receiving millions of dollars in aid.

The goal of this paper is to assess the impact of sectoral foreign aid on least developed countries with on-going conflicts, using Afghanistan as a case study. Foreign aid data is collected from the OECD[1] and the conflict data is from the Uppsala Conflict Data Program[2]. The regression results indicate a general relationship between foreign aid and instances of conflict. Moreover, ODA has a unique impact on instances of conflict particularly when targeted towards specific sectors such as education, health, energy, and business and financial services. However, a two-way causality between conflict and foreign aid may exist and the impact of sectoral aid on each other remain unclear from this study.

The paper is organized in the following manner: the next section provides an overview of LDCs, foreign aid to LDCs, and on-going conflicts in LDCs, the second section provides a review of literature, the third section outlines the research question and explains the data and variables, the fourth section is a case analysis of Afghanistan, the fifth section introduces the empirical model and the results, while the sixth section presents a discussion of the results.

By: Madiha Samadi

Please click below to download the full research paper.



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