Charity Begins at Home: Domestic Political Economy of Chinese Foreign Aid

55 Pages Posted: 27 Apr 2022 Last revised: 24 Jun 2022

See all articles by Sibo Liu

Sibo Liu

Hong Kong Baptist University

Dong Zhang

Hong Kong University of Science & Technology (HKUST)

Date Written: April 12, 2022

Abstract

How does an authoritarian donor’s domestic political economy shape its aid practices? We probe into the case of China, the largest authoritarian donor in the world, and contend that the regime survival imperative drives China’s aid policies to prioritize commercial interests and sustain the state capitalism model. By leveraging multiple data sources, we employ a difference-in-differences design and conduct our analysis at the country, industry, firm, and product levels. We empirically document that Chinese aid projects lead to a substantial surge of Chinese exports to aid recipient countries, generating large revenues primarily for Chinese state-owned enterprises (SOEs). In particular, the aid-induced trade benefits are concentrated among SOEs with low performance and large employment. Our analysis also rules out decreased trade costs, favorable trade terms, and the product price difference between SOEs and private firms as alternative explanations.

Keywords: Foreign Aid, Authoritarian Regimes, State-Owned Enterprises, International Trade

JEL Classification: F14, F50, P16, P33

Suggested Citation

Liu, Sibo and Zhang, Dong, Charity Begins at Home: Domestic Political Economy of Chinese Foreign Aid (April 12, 2022). Available at SSRN: https://ssrn.com/abstract=4082120 or http://dx.doi.org/10.2139/ssrn.4082120

Sibo Liu (Contact Author)

Hong Kong Baptist University ( email )

Renfrew Road 34
Kowloon Tong
Hong Kong

Dong Zhang

Hong Kong University of Science & Technology (HKUST) ( email )

Clearwater Bay
Kowloon, 999999
Hong Kong

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