Working Paper: CEPR ID: DP13840
Authors: Axel Dreher; Andreas Fuchs; Roland Hodler; Brad Parks; Paul A. Raschky; Michael J. Tierney
Abstract: Chinese aid comes with few strings attached, allowing recipient country leaders to use it for domestic political purposes. The vulnerability of Chinese aid to political capture has prompted speculation that it may be economically ineffective, or even harmful. We test these claims by estimating the effect of Chinese aid on subnational economic development - as measured by per-capita nighttime light emissions - and whether this effect is different in politically favored jurisdictions than in other parts of the country. Contrary to the conventional wisdom, we do not find that the local receipt of Chinese aid undermines economic development outcomes at either the district level or provincial level. Nor does political favoritism in the allocation of Chinese aid towards the home regions of recipient country leaders reduce its effectiveness. Our results - from 709 provinces and 5,835 districts within 47 African countries from 2001-2012 - demonstrate that Chinese aid improves local development outcomes, regardless of whether such aid is allocated to politically consequential jurisdictions.
Keywords: foreign aid; development finance; aid effectiveness; favoritism; economic growth; Africa; China
JEL Codes: D73; F35; O19; O47; P33; R11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Chinese aid (F35) | local economic growth (O29) |
| Chinese aid (F35) | per capita nighttime light emissions (Q56) |
| per capita nighttime light emissions (Q56) | subnational GDP (P24) |
| Chinese aid (F35) | effectiveness of aid based on political context (F35) |