73rd International Atlantic Economic Conference

March 28 - 31, 2012 | Istanbul, Turkey

Exploring the nexus: Foreign aid, war on terror, and conflict in Pakistan

Saturday, 31 March 2012: 5:25 PM
Muhammad Nasir, M.Phil , Economics, Pakistan Institute of Development Economics, Islamabad, Pakistan
Faiz Ur Rehman , Department of Economics, Quaid-i-Azam University, Islamabad, Pakistan
Mejzgaan Orakzai , Department of Economics, Quaid-i-Azam University, Islamabad , Pakistan
This study attempts to explore the nexus between foreign aid, war on terror, and terrorism in Pakistan for the period 1972-2010. By making use of Johansen method of cointegration, the study concludes that, contrary to the popular assumption, there is no association between foreign assistance and conflict in Pakistan in both the short-run and long-run. In fact, the impact of foreign aid on terrorism is positive and significant in the long-run during the war on terror period. Furthermore, the positive impact of GDP on terrorism mirror the fact that militants consider terrorist attacks a feasible option compare to open war in the face of enhanced state capacity. The study also unearths the non-linear U-shape relationship between political repression and violence in the long-run. Nonetheless, the two variables exhibit an inverted U-shape relationship in the short-run. Based on the results obtained, the study suggests appropriate policy measures to reduce terrorism and violence in the country.