National Security

February 24, 2009
Martin Feldstein, Organizer

Effie Benlemech, Harvard University and NBER, Claude Berrebi, RAND Corporation, and Esteban Klor, Hebrew University
Economic Conditions and the Quality of Suicide Terrorism

Benmelech, Berrebi, and Klor analyze the link between economic conditions and the quality of suicide terrorism. While the existing empirical literature shows that poverty and economic conditions are not correlated with the quantity of terror, theory predicts that poverty and poor economic conditions may affect the quality of terror. Poor economic conditions may lead more able, better-educated individuals to participate in terror attacks, allowing terror organizations to send better-qualified terrorists to more complex, higher-impact, terror missions. The authors provide evidence on the correlation between economic conditions, the characteristics of suicide terrorists, and the targets they attack. High levels of unemployment enable terror organizations to recruit more educated, mature and experienced suicide terrorists who in turn attack more important Israeli targets.

Nayantara Hensel, U.S. Naval Postgraduate School
Globalization and the U.S. Defense Industrial Postgraduate School Base

Growth in the global economy together with the trend toward outsourcing have given rise to concerns about the composition and strength of the U.S. industrial base, and the degree of U.S. dependence on other countries for certain goods. Hensel examines the concerns surrounding the alleged inroads of foreign manufacturers into the U.S. defense industrial base, as well as the background behind those concerns, with a specific focus on the recent competition between Boeing and a team composed of Northrop Grumman and European Aerospace and Defense Systems (EADS) for what may be the second largest defense contract in U.S. history -- to supply the USAF with a new fleet of aerial refueling tankers. Hensel discusses the importance of imports and national defense spending in the U.S. economy, explores the dependence (or lack thereof) of the United States on foreign imports in the defense sector, provides a historical taxonomy of strategies that have previously been deployed to reduce the role of foreign manufacturers in the U.S. defense industrial base, and, finally, examines in detail the recent tanker competition. The author argues that this competition required the deployment of a different strategy on the part of the incumbent in the industry (Boeing) and the potential entrant (Northrop / EADS). In this instance, the foreign entrant, EADS, teamed with a U.S. manufacturer and directly invested in the U.S. defense industrial base by creating jobs and building facilities. In many of the historical cases, on the other hand, foreign involvement in the defense sector involved the entry into the U.S. markets by acquiring a U.S. company or by producing the products overseas and importing them into the United States.

Jonathan Lipow, Oberlin University and Peter Berck, UC, Berkeley
Did Monetary Forces Turn the Tide in Iraq?

Between 2004 and 2009, Iraq’s currency experienced a massive real appreciation, driven by both nominal exchange rate appreciation and high inflation. The forces driving this appreciation include the end of economic sanctions, the rally in oil prices, and the influx of U.S. aid. During the same period, a number of insurgent groups confronted the Iraqi government. While once posing a formidable threat to Allied forces, the insurgents now seem to be in a terminal decline. Berck and Lipow argue that the real appreciation of Iraq’s currency may have played an important role in weakening the various insurgent movements. Many of these organizations were heavily dependent on foreign funding, and the appreciation eroded the purchasing power of their foreign funds. This may have forced insurgents to turn to forms of domestic financing that are inherently inferior for two reasons: first, the collection of local “taxes” by insurgents would reduce their popularity; second, local collection of revenue increases the autonomy of local insurgent commanders at the expense of central command authorities.

Diana Lien, Aline Quester and Robert Shuford,Center for Naval Analyses
Marine Corps Deployment Tempo and Retention from FY04 to FY07

Lien, Quester, and Shuford analyze how deployments, either by total days or location, influence reenlistment and retention. They look at the reenlistment decisions of enlisted Marines between FY04 and FY07 and the retention decisions of Marine officers between December 2006 and December 2007. In their multivariate regressions they control for a number of characteristics that could influence reenlistment and retention decisions, including dependent status, race, and ethnicity. They focus particularly on dependent status because participants in December 2006 and January 2007 focus groups mentioned differences in the deployment tempo of Marines with and without dependents.

Eli Berman, UC, San Diego and NBER
Religious Radicalism and Violence in the Modern World

In the eighth year after 9/11/2001, is it possible to step back and view radical Islamic terrorism within the broad landscape of political and economic development in the Muslim world? While terrorist acts can launch wars, forestall peace, and cause tremendous human suffering, they are symptoms rather than causes of the underlying forces that shape human development. Radial religious traditions have a long history; they often reflect deep societal change. Christian sects have survived at the fringes of European culture since the Protestant Reformation, despite persecution by the dominant denominations -- persecution that was often violent. The Anabaptist tradition, which is today continued by Amish, Hutterites, and Mennonites, dates back to sixteenth century religious communities in Switzerland and the Rhineland – which arose in a period of particular religious and political turmoil. Drawing on the Essenes, an analogous communal Jewish sect, and the early Anabaptists, Berman attempts to see what historical Jewish and Christian experiences with religious radicals can teach us about where today's religious radicals fit in the broad sweep of history. The answer recalls a historic debate between Adam Smith and David Hume over regulating religion and the efficient separation of church and state.

Radha Iyengar, London School of Economics and NBER, JONATHAN MONTEN, Yale University and Matthew Hanson,National Bureau of Economic Research
The Impact of Reconstruction Spending on the Labor Market for Insurgents

Despite the frequent assertion that reconstruction and economic development programs are effective policy mechanisms for combating insurgencies and more broadly violence, there is very little rigorous evidence evaluating the impact of these programs or their underlying causal logic. If reconstruction spending reduces the labor pool available to insurgent organizations by improving outside options for potential recruits, it may play a crucial role in both rebuilding post-conflict societies and increasing stability for future growth and development. Hanson, Iyengar, and Monten use a particular form of reconstruction spending, U.S. Commander‘s Emergency Response Program (CERP), a small discretionary reconstruction program focused on generating employment activity and procurement of technology for local Iraqi use. Using a simple theoretical model, they show that if improved legal sector employment conditions affect insurgency participation, they would expect to observe both reduced insurgent recruiting, but also insurgent groups substituting away from labor-intensive forms of violence and towards more capital-intensive attacks. The primary concern with this estimation is that employment-generating reconstruction spending is not uncorrelated with unobserved trends in violence. To address this, the researchers use the interaction of rotations of U.S. military forces in Iraq across various regions in Iraq during different periods of CERP funding levels as an instrument for the fraction of labor-intensive projects in a region. They find that a 10 percent increase in the fraction of labor-intensive projects reduces violence by about 5 percent. They also find this reduction comes largely from a reduction in labor-intensive forms of violence, such as small arms fire, torture, and execution. Overall, they find evidence that the legal labor market is a substitute for insurgent activity and thus that employment generating activities may be an effective strategy for reducing both recruitment and retention in the insurgency.

Jim Hosek and Francisco Martorell, RAND Corporation
How Have Deployments during the War on Terrorism Affected Re-enlistments, (not available for download)

Hosek and Martorell analyze the relationship between deployment and reenlistment during the war on terrorism. They review trends in deployment and reenlistment as well as the recent literature on deployment and its consequences. They also present theoretical and econometric models of the effect of deployment on reenlistment and empirical estimates of the effect based on survey data and administrative data. Finally, they estimate the effect of bonuses on reenlistment and describe the role of bonuses in sustaining reenlistment.

Christopher Blattmen, Yale University and Edward Miguel, UC, Berkeley and NBER
Civil War

The past decade has witnessed an explosion of research into the causes and consequences of civil wars, belatedly bringing the topic into the economics mainstream. Formal theory has centered on a central puzzle: why do civil wars occur at all when, given the high costs of war, groups have every incentive to reach an agreement that avoids fighting? Explanations have focused on information asymmetries and the inability to sign binding contracts in the absence of the rule of law. Economic theory has made less progress, however, on the thornier (but equally important) problems of why armed groups form and cohere, and why individuals decide to fight. Likewise, the actual behavior of armed organizations and their leaders is poorly understood. On the empirical side, a vast cross-country econometric literature has aimed to identify the causes of civil war. Most work is plagued by econometric identification problems, but it seems that low per capita incomes and geographic conditions favoring insurgency are the factors most robustly linked to civil war. Blattman and Miguel argue that to truly decipher war’s causes, and understand the recruitment, organization, and conduct of armed groups, micro-level analysis and data will be needed. They highlight recent advances in this area. Finally, turning to the economic legacies of war, they frame the literature in terms of neoclassical economic growth theory. Emerging stylized facts include the ability of some economies to experience rapid macroeconomic recoveries, while certain human capital impacts appear more persistent. Yet econometric identification has not been adequately addressed, and there is little consensus on the most effective policies to avert conflicts or promote postwar recovery. The evidence base is weakest where it is arguably most important: in understanding civil wars’ effects on institutions, technology, and social norms.

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