DP10704 Aid on Demand: African Leaders and the Geography of China's Foreign Assistance

Author(s): Axel Dreher, Andreas Fuchs, Roland Hodler, Bradley C. Parks, Paul A. Raschky, Michael J. Tierney
Publication Date: July 2015
Keyword(s): Africa, aid allocation, China, favoritism, foreign aid, georeferenced data, official development assistance, spatial analysis
JEL(s): D73, F35, P33, R11
Programme Areas: Public Economics, International Trade and Regional Economics, Development Economics
Link to this Page: www.cepr.org/active/publications/discussion_papers/dp.php?dpno=10704

This article investigates whether China's foreign aid is particularly prone to political capture by political leaders of aid-receiving countries. Specifically, we examine whether more Chinese aid is allocated to the political leaders' birth regions and regions populated by the ethnic group to which the leader belongs, controlling for indicators of need and various fixed effects. We have collected data on 117 African leaders' birthplaces and ethnic groups and geocoded 1,650 Chinese development finance projects across 3,097 physical locations committed to Africa over the 2000-2012 period. Our econometric results show that current political leaders' birth regions receive substantially larger financial flows from China than other regions. On the contrary, when we replicate the analysis for the World Bank, our regressions with region-fixed effects show no evidence of such favoritism. For Chinese and World Bank aid alike, we also find no evidence that African leaders direct more aid to areas populated by groups who share their ethnicity, when controlling for region-fixed effects.