How China’s Aid Helps Recipient Countries Build Export Capacity

Yan Hongrong (阎虹戎)1, Zhang Xiaolu (张小鹿)2* and Huang Meibo (黄梅波)3

1, 3 International Development Cooperation Academy, Shanghai University of International Business and Economics, Shanghai, China

2 School of Social Science and Institute for Innovation and Development, Tsinghua University, Beijing, China

Abstract: Based on data of China’s aid to 120 countries and recipient countries’ export data between 2002-2014, this paper investigated the export effects of China’s aid. We found that China’s aid was conducive to recipient countries’ exports to China, helping recipient countries boost their development capacity and meet China’s consumption demand at the same time. In this manner, China’s foreign aid has lived up to the principle of “mutually beneficial cooperation”. Heterogeneity test found that China’s aid helped recipient countries increase their exports of manufacturing goods of their comparative advantage, mainly medium- and low-end manufacturing products, to China without increasing the exports of non-manufacturing goods, such as agricultural produce as well as primary and resource goods. Our findings have thoroughly refuted criticisms like the “resource exploitation” narrative by Western countries against China. Apart from increasing African countries’ exports to China, China’s aid also helped other recipient countries outside Africa, mostly medium- and low-income recipient countries, to export more to China. China’s aid-for-trade (AfT) programs did not significantly increase recipient countries’ capacity to export to China. A test of the mechanism of action found that industrial development in recipient countries exerted only a partial intermediate effect in enhancing recipient countries’ capacity to export to China.

Keywords: foreign aid, recipient countries, export capacity, mutually beneficial cooperation

JEL Classification Codes: F35, P33

DOI: 10.19602/j.chinaeconomist.2021.03.01