DP17128 Can Aid Buy Foreign Public Support? Evidence from Chinese Development Finance

Author(s): Axel Dreher, Andreas Fuchs, Brad Parks, Austin Strange, Lukas Wellner
Publication Date: March 2022
Keyword(s): aid events, China, Development finance, foreign aid, Gallup World Poll, Government approval, Public Opinion, soft power
JEL(s): F35, F59, H73, H77, O19, P33
Programme Areas: Development Economics, International Macroeconomics and Finance, Political Economy
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=17128

Bilateral donors use foreign aid to pursue soft power. We test the effectiveness of aid in reaching this goal by leveraging a new dataset on the precise commitment, implementation, and completion dates of Chinese development projects. We use data from the Gallup World Poll for 126 countries over the 2006-2017 period and identify causal effects with (i) an event-study model that includes high-dimensional fixed effects, and (ii) instrumental-variables regressions that rely on exogenous variation in the supply of Chinese government financing over time. Our results are nuanced and depend on whether we focus on subnational jurisdictions, countries, or groupings of countries. On average, we estimate that the completion of one additional development project in a recipient country increases public support for the Chinese government by more than 3 percentage points in the short run and 0.2 percentage points in the longer run.