Building Bridges or Breaking Bonds? The Belt and Road Initiative and Foreign Aid Competition

Abstract

China's renewed prominence is the most important development in international relations in the 21st century. Despite longstanding rhetoric of its own "peaceful rise", China is increasingly viewed as a long-term strategic competitor, especially in the United States. Foreign aid is one arena where this competition may be playing out. While Western foreign aid principles have emphasized coordination and harmonization, the rise of China as a development partner has raised the specter of a return to competitive foreign aid practices. Most notably, China's Belt and Road Initiative (BRI), has received a wary reception by those who view it primarily as a geostrategic effort, but our knowledge of responses to the BRI is often anecdotal and fragmentary. To remedy this, we test if the BRI is inducing a competitive foreign aid response by evaluating if countries involved in this initiative are more likely to receive US support for loan packages from the major, Western, multilateral development banks (MDBs). Using an instrumental variable approach, covering 7,850 project/loan packages in 10 MDBs from 162 countries during 2013-2018 period, we find that the United States was more likely to vote for MDB packages to countries that have signed on to the BRI, but predominantly when the actual amount of Chinese aid flowing to those countries is still low, suggesting the United States is competing for "hedging"countries.