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Institutional Quality, Foreign Aid and Economic Growth in Recipient Countries
Wang Xiaosong (王孝松) * and Tian Siyuan (田思远）
School of Economics, Renmin University of China (RUC), Beijing, China
Abstract:Foreign aid is an important aspect of China’s Belt and Road Initiative (BRI) for enhancing two-way cooperation with BRI countries. Based on the panel data of China’s foreign aid over the period 2000-2014, this paper employs the Worldwide Governance Indicators (WGI) to conduct an empirical study on the economic growth effects of China’s foreign aid and recipient countries’ institutional quality with the endogeneity of aid taken into account. Results of our empirical study suggest that (i) China’s foreign aid, especially infrastructure aid, can effectively promote economic growth in recipient countries; (ii) sound institutional development offers an important assurance for economic growth in recipient countries; (iii) sample-specific regression reveals that the institutional quality of recipient countries can significantly influence the economic growth effects of China’s foreign aid, especially economic infrastructure aid for recipient countries in Asia and Europe. To improve aid effectiveness and quality, China needs to improve aid structure, supervise aid program implementation, and mitigate the impact of institutional risks in recipient countries
Keywords:foreign aid, institutional quality, economic growth, BRI
JEL Classification Codes: F35, F43, O47
DOI: 10.19602/j.chinaeconomist.2020.11.06
