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Is Favoritism a Threat to Chinese Aid Effectiveness? A Subnational Analysis of Chinese Development Projects

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  • Dreher, Axel
  • Fuchs, Andreas
  • Hodler, Roland
  • Parks, Bradley
  • ,
  • Tierney, Michael

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.

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  • Dreher, Axel & Fuchs, Andreas & Hodler, Roland & Parks, Bradley & , & Tierney, Michael, 2019. "Is Favoritism a Threat to Chinese Aid Effectiveness? A Subnational Analysis of Chinese Development Projects," CEPR Discussion Papers 13840, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:13840
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    More about this item

    Keywords

    Foreign aid; Development finance; Aid effectiveness; China; Africa; Favoritism; Economic growth;
    All these keywords.

    JEL classification:

    • D73 - Microeconomics - - Analysis of Collective Decision-Making - - - Bureaucracy; Administrative Processes in Public Organizations; Corruption
    • F35 - International Economics - - International Finance - - - Foreign Aid
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • P33 - Political Economy and Comparative Economic Systems - - Socialist Institutions and Their Transitions - - - International Trade, Finance, Investment, Relations, and Aid
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

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