China’s Foreign Aid, RecipientCountries’ Economic Growth, and theMediating Effect of Aid in Infrastructure

Yan Bing*1, Xie Xindi2, and Wen Bo3

1 Center for the Research of Multinational Corporations (MNCs), Nankai University, Tianjin, China

2 International Economic Research Institute, Nankai University

3 Bank of Shanghai Co., Ltd.

Abstract: Based on the panel data of China’s foreign aid in 2003-2014 from AidData,this paper empirically investigates the relationship between China’s foreign aid andeconomic growth in recipient countries. Using the principal component analysis (PCA),the authors propose a variable, i.e. the infrastructure index, to measure the effects of aidon the economic growth of recipient countries. This study shows that aid from China hassignificantly improved the level of economic growth in recipient countries, which providesa new evidence of China’s aid effectiveness. Through analysis of the ways by which aid ininfrastructure induces economic growth, the authors conclude that the improvement of localinfrastructure accounts for 55.30% of the aggregate economic growth effect of China’s aidto recipient countries.

Keywords: Foreign aid, economic growth, infrastructure, mediating effect

JEL Classification Code: F35, F43, H54

DOI: 10.19602/j.chinaeconomist.2023.01.02