Paying Them to Hate US: The Effect of U.S. Military Aid on Anti-American Terrorism, 1968-2014

Does U.S. military aid make the United States safer? To answer this question, we collect data on 173 countries between 1968 and 2014. Exploiting quasi-random variation in the global patterns of U.S. military aid, our paper is the first to provide causal estimates of the effect of U.S. military aid on anti-American terrorism. We find that higher levels of military aid led to an increased likelihood of the recipient country to produce anti-American terrorism. For our preferred instrumental-variable specification, doubling U.S. military aid increases the risk of anti-American terrorism by 4.4 percentage points. Examining potential transmission channels, we find that more U.S. military aid leads to more corruption and exclusionary policies in recipient countries. Consistent with a theoretical argument developed in this paper, these results indicate that the inflow of military aid induces rent-seeking behavior, which in turn encourages terrorism by groups that suffer from reduced economic and political participation as a consequence of rent-seeking. These groups direct their dissatisfaction against the United States as the perceived linchpin of an unfavorable status quo in the recipient country.