Abstract
The 9/11 terrorist attacks in United States and the subsequent declaration of war on terror have upturned worldwide issues including terrorist attacks, fatalities, disbursement of foreign aid and development assistance. Since 9/11 attacks, US economic and military aids and official development assistance have played a vital role in the South Asian region. Present study is the pioneer to examine the reaction of different types of foreign aid toward counter-terrorism policies. For this purpose, the paper used annual data of studied factors for the period 1991 to 2016 and employed three models as preferred and full specification, pre and post 9/11 analysis and financial crisis analysis. For econometric estimations, the study used quantile regression method, negative binomial regression, system GMM and two stage IV regression techniques with different control variables. Accordingly, the study documented that all types of foreign aid namely; development assistance, economic aid, military aid fuels terrorism in recipient countries, due to institutional problems or ongoing civil conflicts. We also find evidence that military expenditures and media freedom tends to have negative relationship on terrorism.
•Development assistance and USAID induces to increase terrorism in South Asian countries.•Military expenditures and global media freedom tends to have negative relationship with terrorist attacks.•We are not able to reject the null hypothesis that foreign aid (all types) is exogenous.•Terrorism is positively associated with the growing population of South Asian countries.•Government effectiveness and institutional factors positively contribute to incite terrorism.