Researchers have attempted to link foreign aid to conflict with some suggesting that aid exacerbates existing ethnic cleavages while others say it presents an opportunity to payoff rebels who start civil war. Yet others argue that aid decreases the risk of civil war by promoting economic growth and strengthening state capabilities. This study delves into the confusion over foreign aid and its effects on armed conflict. It argues that aid shocks or sudden decreases in aid revenues, may shift the domestic balance of power and potentially induce violence because potential rebels gain bargaining strength with the government.