Nation building and economic growth

A major component of US foreign policy has been "nation building" through military and economic aid. This policy is of course not disinterested, and the ultimate goal is to secure commercial outlets for American businesses, and over some decades, to prevent the spread of the red menace, which is in fact related to the first goal. In terms of resources, this policy has been tremendously expensive, as the latest episode in Iraq has demonstrated. Is it worth it? That is difficult to measure, but if you think that what the us cares for is access to larger markets, then GDP growth should be a good metric for nation building success.

Ellyn Creasey, Ahmed Rahman and Katherine Smith find that nation building is moderately good for growth during a conflict, but quite bad thereafter. The latter result is not inconsistent with quite a bit of literature that shows that economic aid is not particularly useful, also absent nation building. What is new here is the stark contrast during and after the conflict. And if you wondered how they could measure a nation building effort: they look at economic aid conditional on military aid and the existence of a conflict currently or within the past seven years.

Incidentally, check out this promising new book and new blog about failed nations.