1. MILITARY AID AND Economic Growth Identifying Transmission Mechanisms in Sub-Saharan Africa Joshua M. Weinberg International and Development Economics University of San Francisco

2. How does Military Developmenteffect Economic Development? 3. Military as InstitutionSovereignty and Security External Threats and Internal Rebellions Humanitarian Disasters Internal Local Security Border Security 4. Military as InstitutionChallenges to Development Professionalism and Capacity Sectional and Political Interests Civilian Oversight Economic Resources Human Rights 5. Role of Military Aid PositiveTransfer institutional qualitiesBuild professionalismIncrease securityNegativeIncrease military expenditureGrow bad institutionsIncrease conflict/insecurity 6. Military Aid International Military Training and Education (IMET)Military training provided by the US for select foreign nation personnel in the US and overseasTraining is bothTactical (war fighting)Institutional (professional development) 7. Military Aid International Military Training and Education (IMET)Military training provided by the US for select foreign nation personnel in the US and overseasTraining is bothTactical (war fighting)Institutional (professional development) 8. Military Aid IMET Stated Goals Defense relationship/Interoperability Institutional capacity/self-sufficiency Exposing foreign civilian and military officials to: Democratic values Role of the military in a civilian-led government Military professionalism International norms of human rights 9. Military Aid IMET Stated Goals Defense relationship/interoperability Institutional capacity/self-sufficiency Exposing foreign civilian and military officials to: Democratic values Role of the military in a civilian-led government Military professionalism International norms of human rights 10. Military Aid Foreign Military Finance (FMF)Grants and loans to foreign nations for acquisition of: Military equipment (e.g. weapons, vehicles) Military services (e.g. logistical support) Military training (tactical and institutional) 11. Military AidFMF Stated Goals Support regional stability Interoperability with US and coalition forces Enable allies to improve defense capabilities 12. Military Aid Funding Budget Request (President) Appropriation(Congress)Allocation (State Dept.) Implementation(Dept. of Defense) 13. Military Aid Funding 14. Panel Data 1995-2007Military Aid data limitationStructural change in Military Aid since Cold War Sub-Saharan Africa (SSA)45 CountriesUnique Characteristics 15. Methodology Literature Growth Empirics Literature Aid and Growth in Sub-Saharan Africa Gormanee, Girma and Morrissey (2005) Regime Change, Economic Policies and the Effect of Aid on Economic Growth Islam (2005) Military Aid Literature The Fiscal Impact of US Military Assistance Program Stein, Ishimatsu and Stoll (1985) 16. Transmission MechanismsMilitary Aid 17. Transmission Mechanisms Institutions Military Aid ConflictFiscal Policy 18. Transmission Mechanisms Institutions Economic Military Aid ConflictGrowthFiscal Policy 19. Transmission Mechanisms Institutions Economic Military Aid ConflictGrowthFiscal Policy 20. Residual Instruments Formal Model Y = X + ( X X ) + U* * 21. Residual Instruments Formal Model Y = X + ( X X ) + U * *Y GrowthX Transmission Mechanism Z Covariates (including Military Aid) 22. Residual Instruments Formal Model Part of X explained by factors other than ZY = X + ( X X ) + U* * Y Growth X Transmission Mechanism Z Covariates (incl. Military Aid) 23. Residual Instruments Formal Model Y = X + ( X X ) + U** X = X + = Z + *Y Growth X Transmission Mechanism Z Covariates (incl. Military Aid) 24. Residual Instruments Formal Model Y = X + ( X X ) + U* * X = X + = Z + *Strength of link between X and Z Y Growth X Transmission Mechanism Z Covariates (incl. Military Aid) 25. Residual Instruments Formal ModelTrans. Mechanism = X = 1 + 2 MilAid 26. Residual Instruments Formal ModelTrans. Mechanism = X = 1 + 2 MilAid Part of the Transmission Mechanism that is not attributed to Military Aid 27. Residual Instruments Formal ModelTrans. Mechanism = X = 1 + 2 MilAid Estimated from the residual of regressing the Transmission Mechanism on Military Aid 28. Residual Instruments Formal Model g = 1 X + 2 MilAid + Z z + U 29. Residual Instruments Formal Modelg = 1 X + 2 MilAid + Z z + UGrowth 30. Residual Instruments Formal Model g = 1 X + 2 MilAid + Z z + UTransmission Mechanism 31. Residual Instruments Formal Model g = 1 X + 2 MilAid + Z z + U Military Aid 32. Residual Instruments Formal Model g = 1 X + 2 MilAid + Z z + UVector of covariates 33. Residual Instruments Formal Model g = 1 X + 2 MilAid + Z z + U substitute X = 1 + 2 MilAid 34. Residual Instruments Formal Model g = 1 X + 2 MilAid + Z z + U substitute X = 1 + 2 MilAidResidual from first stage equation 35. Residual Instruments Formal Modelg = 1 X + 2 MilAid + Z z + UX = 1 + 2 MilAidg = 1 ( X 2 MilAid ) + 1 ( 2 MilAid ) + 2 MilAid + Z z + U 36. Residual Instruments Formal Modelg = 1 X + 2 MilAid + Z z + UX = 1 + 2 MilAidg = 1 ( X 2 MilAid ) + 1 ( 2 MilAid ) + 2 MilAid + Z z + U g = 11 + ( 1 2 + 2 ) MilAid + Z z + U 37. Residual Instruments Formal Modelg = 1 X + 2 MilAid + Z z + UX = 1 + 2 MilAidg = 1 ( X 2 MilAid ) + 1 ( 2 MilAid ) + 2 MilAid + Z z + U g = 11 + ( 1 2 + 2 ) MilAid + Z z + U 38. Residual Instruments Formal Modelg = 1 X + 2 MilAid + Z z + UX = 1 + 2 MilAidg = 1 ( X 2 MilAid ) + 1 ( 2 MilAid ) + 2 MilAid + Z z + U g = 11 + ( 1 2 + 2 ) MilAid + Z z + U Effect of Transmission Mechanism (no change in coefficient) 39. Residual Instruments Formal Modelg = 1 X + 2 MilAid + Z z + UX = 1 + 2 MilAidg = 1 ( X 2 MilAid ) + 1 ( 2 MilAid ) + 2 MilAid + Z z + U g = 11 + ( 1 2 + 2 ) MilAid + Z z + U Only changes the coefficient on Military Aid(includes effect via Transmission Mechanism) 40. Residual Instruments Interpretation If effect of Transmission Mechanism on Growth is..... + and effect of Military Aid on Transmission Mechanism is + therefore, change in Military Aid coefficient will be + If effect of Transmission Mechanism on Growth is - and effect of Military Aid on Transmission Mechanism is + therefore, change in Military Aid coefficient will be - 41. Institutions Institutions Index based on six indicators:Voice and AccountabilityPolitical Stability and Absence of ViolenceGovernment EffectivenessRegulatory QualityRule of LawControl of Corruption Principle Component Analysis 42. Institutions Adapted Islam (2005) Institutions Equation: 43. Institutions Adapted Islam (2005) Institutions Equation:Growth: Gross Domestic Product (GDP) per capita (% annual change) 44. Institutions Adapted Islam (2005) Institutions Equation:Growth: Gross Domestic Product (GDP) per capita (% annual changeMilitary Aid: Log Transformed Moving Average (3 year window) 45. Institutions Adapted Islam (2005) Institutions Equation:Growth: Gross Domestic Product (GDP) per capita (% annual changeMilitary Aid: Log Transformed Moving Average (3 year window) Fixed Effects 46. Institutions Adapted Islam (2005) Institutions Equation:Growth: Gross Domestic Product (GDP) per capita (% annual changeMilitary Aid: Log Transformed Moving Average (3 year window) Fixed Effects Year Dummies 47. Fiscal Policy Adapted Stein et al. (1985) Policy EquationPossible effects of Military Aid Additive Stimulative Substitutive 48. Fiscal PolicyVariables Considered Domestic Military Expenditure Social Programs Government Consumption Tax Revenue Public Investment 49. Fiscal PolicyVariables Considered Domestic Military Expenditure Social Programs Government Consumption Tax Revenue Public Investment 50. Growth RegressionPotential Problems Endogeniety Instrumentation Strategies Single Years vs. Multi-Year Blocks 51. Growth RegressionAdapted Islam (2005) Growth Equation Policy Index Inflation Trade (% GDP) Trade Openness Rating Financial Depth M2/GDP 52. Residual Instruments Interpretation If effect of Transmission Mechanism on Growth is..... + and effect of Military Aid on Transmission Mechanism is + therefore, change in Military Aid coefficient will be + If effect of Transmission Mechanism on Growth is - and effect of Military Aid on Transmission Mechanism is + therefore, change in Military Aid coefficient will be - 53. Residual Instruments Results 54. Further ResearchIndividual Country Case Studies Military Institutional Index Possible Indicators 55. Thank You