Connective Financing: Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries

AidData Working Paper No. 64

68 Pages Posted: 30 Oct 2018

See all articles by Richard Bluhm

Richard Bluhm

Leibniz University Hannover; UNU-MERIT; Maastricht Graduate School of Governance

Axel Dreher

Heidelberg University

Andreas Fuchs

Helmut Schmidt University Hamburg; Kiel Institute for the World Economy

Bradley Parks

College of William and Mary

Austin Strange

Harvard University, Faculty of Arts and Sciences, Department of Government

Michael J. Tierney

College of William and Mary

Date Written: September 1, 2018

Abstract

How do development projects influence the geographic distribution of economic activity within low-income and middle-income countries? Existing research focuses on the effects of Western development projects on inter-personal inequality and inequality across different subnational regions. However, China has recently become a major financier of economic infrastructure in Africa, Asia, Latin America, the Middle East, and Central and Eastern Europe, and it is unclear if these investments diffuse or concentrate economic activity. We introduce an original dataset of geo-located Chinese Government-financed projects in 138 countries between 2000 and 2014, and analyze the effects of these projects on the spatial distribution of economic activity within host countries. We find that Chinese development projects in general, and Chinese transportation projects in particular, reduce economic inequality within and between subnational localities. Our results suggest that Chinese investments in “connective infrastructure” produce positive economic spillovers that lead to a more equal distribution of economic activity in the localities where they are implemented.

Keywords: Foreign Aid, Inequality, China, Official Development Assistance, Georeferenced Data, Spatial Analysis, Gini, Aid Effectiveness

JEL Classification: F35, P33, R11, R12

Suggested Citation

Bluhm, Richard and Dreher, Axel and Fuchs, Andreas and Parks, Bradley and Strange, Austin and Tierney, Michael J., Connective Financing: Chinese Infrastructure Projects and the Diffusion of Economic Activity in Developing Countries (September 1, 2018). AidData Working Paper No. 64. Available at SSRN: https://ssrn.com/abstract=3262101 or http://dx.doi.org/10.2139/ssrn.3262101

Richard Bluhm

Leibniz University Hannover ( email )

Institute of Macroeconomics
Koenigsworther Platz 1
Hannover, 30167
Germany

HOME PAGE: http://mak.uni-hannover.de

UNU-MERIT ( email )

Keizer Karelplein 19
Maastricht, 6211TC
Netherlands

Maastricht Graduate School of Governance ( email )

Keizer Karelplein 19
PO Box 616
Maastricht, 6200MD
Netherlands

Axel Dreher

Heidelberg University ( email )

Grabengasse 1
Heidelberg, 69117
Germany

HOME PAGE: http://www.axel-dreher.de

Andreas Fuchs (Contact Author)

Helmut Schmidt University Hamburg ( email )

Holstenhofweg 85
Hamburg, 22043
Germany

Kiel Institute for the World Economy ( email )

Kiellinie 66
Kiel, Schleswig-Hosltein 24105
Germany

Bradley Parks

College of William and Mary ( email )

No Address Available

Austin Strange

Harvard University, Faculty of Arts and Sciences, Department of Government ( email )

1737 Cambridge Street
Cambridge, MA 02138
United States

Michael J. Tierney

College of William and Mary ( email )

P.O. Box 8795
Williamsburg, VA 23185
United States

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