Does Nation Building Spur Economic Growth?

21 Pages Posted: 21 Nov 2014

See all articles by Ellyn Creasey

Ellyn Creasey

United States Naval Academy - Department of Economics

Ahmed Rahman

United States Naval Academy

Katherine A. Smith

U.S. Naval Academy

Date Written: January 2015

Abstract

Nation building, the allocation of economic aid conditional on military assistance in conflict and post-conflict environments, has cost the world trillions of dollars over the last half century. Yet few attempts have been made to quantify the potential economic growth effects for the recipient country from the provision of this aid. Using a 45-year panel dataset, we construct a measure of nation building using a three-way interaction term between military assistance, economic aid, and conflict regime. Considering that slow growing and problem-prone countries may be less likely to receive aid, we instrument for economic aid by estimating donor-to-donee aid flows in a first-stage procedure. Using this approach, we find that spending on nation building has positive growth effects during conflict periods, but that these effects disappear after conflict.

Suggested Citation

Creasey, Ellyn and Rahman, Ahmed and Smith, Katherine A., Does Nation Building Spur Economic Growth? (January 2015). Economic Inquiry, Vol. 53, Issue 1, pp. 660-680, 2015, Available at SSRN: https://ssrn.com/abstract=2528858 or http://dx.doi.org/10.1111/ecin.12148

Ellyn Creasey (Contact Author)

United States Naval Academy - Department of Economics ( email )

589 McNair Road
Annapolis, MD 21402
United States

Ahmed Rahman

United States Naval Academy ( email )

121 Blake Road
Annapolis, MD 21402
United States

Katherine A. Smith

U.S. Naval Academy ( email )

121 Blake Road
Annapolis, MD 21402-5000
United States

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