Since the recent Paris attacks there have been a few articles (like this one) arguing that increasing foreign aid with the purpose of boosting economic development in poorer countries might be a way to battle terrorism at its roots. The first assumption here is that extremism is caused and fostered in countries with high levels of poverty, and that providing foreign aid will help to get the poorest out of poverty, thus reducing the attraction of these extremist groups.
However, there is a lot of evidence to show foreign aid itself is not actually the key to reducing poverty. Economists such Bill Easterly and Angus Deaton have successfully argued that aid does not help reduce poverty, and in fact could even increase it. In his book The Great Escape, Deaton says:
If poverty is not a result of lack of resources or opportunities, but of poor institutions, poor government, and toxic politics, giving money to poor countries — particularly giving money to the governments of poor countries — is likely to perpetuate and prolong poverty, not eliminate it.
Therefore, even if we assume that poverty leads to extremism, the remedy of increasing international aid is wrong.
However, we cannot assume poverty is a cause of terrorism in a first place. Any link between the two was proven to be more or less non existent in Alan Kruger’s paper “Education, Poverty, Political Violence, and Terrorism: Is There a Causal Connection?”, and if there is it’s indirect and incredibly weak. It is far more likely to be the result of a poor political climate within a country:
Perhaps surprisingly, our review of the evidence provides little reason for optimism that a reduction in poverty or an increase in educational attainment would meaningfully reduce international terrorism…. We suggest it is more accurately viewed as a response to political conditions and long-standing feelings of indignity and frustration that have little to do with economics.
This was backed up by a 2011 report by Christine Fair from Georgetown university, which actually found that in Pakistan people from a more affluent background with a higher level of education were most the most likely to be radicalised, as those with a lower socioeconomic status are the most likely to be adversely affected by terror attacks and violence.
There are a number of myths about the best way to stop the growth of terrorist groups, more of which are mentioned more in this blog by Mugwump, and it would appear that increasing foreign aid is just another one.