Book excerpt: Aid is theorized to reduce the supply of transnational terrorist attacks by improving economic prospects and defraying the cost of counterterrorism efforts by recipient governments. We argue that the effectiveness of foreign aid in reducing terrorism depends on the capacity of aid delivery channels in recipient countries. Aid given directly to corrupt governments is unlikely to reduce terrorism, as aid capture and distortion are more likely in such environments. Similarly, aid is counterproductive if the recipient government uses repressive counterterrorism measures. On the other hand, aid delivered through NGOs should reduce the supply of transnational terrorism if the size and capacity of the NGO sector is sufficiently large. We estimate negative binomial regressions in two stages using control function methods on a sample of Official Development Assistance (ODA) countries between 2006 and 2009. The evidence is in line with our argument.