The Developing World as the Dragon's Den: Assessing the Role of Environmental Factors in Chinese Development Finance

Abstract

To what extent are decisions regarding Chinese investment in the developing world motivated by environmental factors? A considerable body of work has explored the reasons why China has made a major push to become the lender of choice among developing countries. However, comparatively less scholarly effort has been deployed to explain variation in Chinese investment decisions. In an attempt to fill this gap, this paper presents an empirical test of the hypothesis that China deliberately seeks to invest in countries with poor environmental records and lax environmental protections. Drawing upon project- and country-level foreign assistance data regarding investments made by China’s two policy banks (China Development Bank and Export-Import Bank of China) in Africa and Latin America during 2013 and 2014, this paper reports the findings of a statistical analysis that assesses the explanatory potential of de facto and de jure measures of environmental performance. The results of the study lead to several policy recommendations for China, Western donors, and developing countries struggling to accommodate the often-competing demands of environmental protection and economic development.

Keywords: China, foreign investment, environmental regulation, Africa, Latin America, OECD DAC, development