Unintended consequences : Does aid promote arms races?

Abstract

Military expenditure in developing countries constitutes a substantial claim on government budgets. The opportunity cost in terms of foregone social and growth-promoting expenditures is evident. As donors provide substantial finance to budgets, either directly or as a result of fungibility, there is also a widespread fear that aid intended for poverty reduction may in fact be financing the military. Governments nevertheless choose to spend substantial resources on the military. The most reasonable motivation is the need for security. Historically for most countries the main security threat was external – the country may need to fight an international war. However, international wars are now very rare. For developing countries, the main security threat is likely to be internal. For example, during 2002 there were 21 large-scale violent conflicts of which only one was international (Stockholm International Peace Research Institute, SIPRI, 2003). As the social and economic consequences of internal conflict are often appalling, governments may reasonably conclude that money spent on reducing the risk of internal conflict is well spent despite its high direct opportunity costs for social and economic development.