One good turn deserves another? Evidence from China trade and aid policy

Abstract
In this paper we study the impact of China's foreign aid on exports. To do this, we use a sample of 159 countries during the period 2000-2014 and
employ a gravity model with GDP-weighted multilateral resistance terms. We fi nd that the return on Chinese exports of every dollar spent on foreign aid is around 0.194$-0.4115$, at aggregate level and at HS6 product level, of 0.00004$ on average, for the whole period. Our results also indicate that Chinese foreign aid initiates trade of new product varieties with foreign partners and strengthens the trade in goods that are already exchanged; foreign aid could also enhance trade in existing geographical markets. However, it does not help to create new market shares. Furthermore, it fosters a stronger South-South integration as it encourages mainly the trade relations with developing and emerging countries

Author: Camelia Turcu and Yunzhi Zhang
Volume: 2019.02
Publisher: INFER
Year: 2019
No. of pages: 33
Category: INFER working papers

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