Does India Use Development Finance to Compete With China? A Subnational Analysis

Courant Research Centre ‘Poverty, Equity and Growth in Developing and Transition Countries' Discussion Paper No. 281

59 Pages Posted: 15 Jun 2021

See all articles by Gerda Asmus

Gerda Asmus

Heidelberg University - Alfred Weber Institute for Economics

Vera Z. Eichenauer

KOF Swiss Economic Institute at ETH Zurich

Andreas Fuchs

University of Goettingen (Göttingen) - Faculty of Economics and Business Administration; Kiel Institute for the World Economy

Bradley Parks

AidData

Date Written: June 2021

Abstract

China and India increasingly provide aid and credit to developing countries. This paper explores whether India uses these financial instruments to compete for geopolitical and commercial influence with China (and vice versa). To do so, we build a new geocoded dataset of Indian government-financed projects abroad between 2007 and 2014 and combine it with data on Chinese government-financed projects. Our regression results for 2,333 provinces within 123 countries demonstrate that India's Exim Bank is significantly more likely to locate a project in a given jurisdiction if China provided government financing there in the previous year. Since this effect is more pronounced in countries where China has made public opinion gains relative to India and where both lenders have a similar export structure, we interpret this as evidence of India competing with China. By contrast, we do not find evidence that China uses official aid or credit to compete with India through co-located projects.

Keywords: development finance, foreign aid, official development assistance, official credits, new donors, China, India, geospatial analysis

JEL Classification: F34, F35, F59, H77, H81, O19, O22, P33, R58

Suggested Citation

Asmus, Gerda and Eichenauer, Vera Z. and Fuchs, Andreas and Parks, Bradley, Does India Use Development Finance to Compete With China? A Subnational Analysis (June 2021). Courant Research Centre ‘Poverty, Equity and Growth in Developing and Transition Countries' Discussion Paper No. 281, Available at SSRN: https://ssrn.com/abstract=3866397 or http://dx.doi.org/10.2139/ssrn.3866397

Gerda Asmus

Heidelberg University - Alfred Weber Institute for Economics ( email )

Grabengasse 14
Heidelberg, D-69117
Germany

Vera Z. Eichenauer

KOF Swiss Economic Institute at ETH Zurich ( email )

Leonhardstrasse 21
Zürich, 8092
Switzerland

HOME PAGE: http://https://sites.google.com/view/vera-eichenauer/home

Andreas Fuchs (Contact Author)

University of Goettingen (Göttingen) - Faculty of Economics and Business Administration ( email )

Platz der Goettinger Sieben 3
Goettingen, 37073
Germany

Kiel Institute for the World Economy ( email )

Kiellinie 66
Kiel, Schleswig-Hosltein 24105
Germany

Bradley Parks

AidData ( email )

No Address Available

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