Foreign Aid as Counterterrorism Policy

Federal Reserve Bank of St. Louis Working Paper Series No. 2009-021B

40 Pages Posted: 25 Apr 2009 Last revised: 5 Sep 2010

See all articles by Subhayu Bandyopadhyay

Subhayu Bandyopadhyay

Federal Reserve Bank of St. Louis - Research Division; IZA Institute of Labor Economics; West Virginia University

Todd M. Sandler

University of Texas at Dallas - School of Economic, Political and Policy Sciences, Department of Economics & Finance

Javed Younas

affiliation not provided to SSRN

Date Written: August 1, 2010

Abstract

This paper presents a model where foreign aid bolsters a developing country’s proactive counterterrorism efforts against a resident transnational terrorist group. In stage 1 of the game, the donor country allocates resources to terrorism-fighting tied aid, general assistance, and defensive actions at home. The recipient country then decides its proactive campaign against the common terrorist threat in stage 2, while the terrorists direct their attacks against the donor and recipient countries in stage 3. Terrorists’ choices in the final stage provide a solid microfoundation for the terrorists’ likelihood of success function. In stage 2, greater tied aid raises the recipient country’s proactive measures and regime instability, while increased general aid reduces these proactive efforts and regime instability. In stage 1, a donor’s homeland security decisions are interdependent with its aid package to a recipient country, hosting resident transnational terrorists. This interdependency has gone unrecognized to date.

Keywords: Transnational terrorism, Tied foreign aid, Untied foreign aid, Strategic substitutes, Strategic complements, Regime stability

JEL Classification: H40, O10, D74

Suggested Citation

Bandyopadhyay, Subhayu and Sandler, Todd M. and Younas, Javed, Foreign Aid as Counterterrorism Policy (August 1, 2010). Federal Reserve Bank of St. Louis Working Paper Series No. 2009-021B. Available at SSRN: https://ssrn.com/abstract=1394515 or http://dx.doi.org/10.2139/ssrn.1394515

Subhayu Bandyopadhyay (Contact Author)

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
PO Box 442
St. Louis, MO 63011
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

West Virginia University ( email )

Morgantown, WV 26506-6025
United States
304-293-7879 (Phone)
304-293-7061 (Fax)

Todd M. Sandler

University of Texas at Dallas - School of Economic, Political and Policy Sciences, Department of Economics & Finance ( email )

Richardson, TX 75083
United States

Javed Younas

affiliation not provided to SSRN ( email )

No Address Available

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