States hosting terrorist groups often receive foreign aid from donors who have an interest in reducing the level of terrorism in these countries. However, existing work is inconclusive on the question of whether such aid is effective at bringing about favorable counterterrorism outcomes. Aid scholars argue that the political structure of the recipient regime is an important determinant of development aid effectiveness. I apply this logic to the topic of counterterrorism aid and argue that the effects of foreign aid on terrorism will be conditional on recipient political incentives. In particular, personalist dictatorships are unique in their reliance upon external sources of revenue with which to keep their regimes afloat. Thus, rents from foreign aid encourage these regimes to become counterterrorism “racketeers”, offering their services in exchange for a fee. But rather than fixing the problem, they perpetuate it, as their survival is conditional upon a perpetual security threat. Using a variety of data on regime type, terrorist attacks, and terrorist group duration, I find that in personalist regimes, US aid significantly increases levels of terrorist activity. This paper contributes to the literature linking foreign aid and terrorism by considering domestic politics as an important determinant of counterterrorism aid effectiveness.

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