Aid curse with Chinese characteristics? Chinese development flows and economic reforms

Abstract

The emergence of China as a major development partner requires a reassessment of traditional donor–recipient dynamics. In addition to adopting new rhetoric like “South–South cooperation” or “Win–Win,” China has eschewed classifications and practices of the traditional donors of the Organisation for Economic Co-operation and Development’s Development Assistance Committee. Yet the “new approach” and willful ignorance may not spare China from encountering traditional development challenges. In this paper, we consider whether Chinese development efforts have disincentivized difficult economic reforms by providing recipient governments with alternative resources for building support. Using an instrumental variable approach with panel data covering 106 countries during the 2000–2014 period, we find that when comparing Chinese development flows to several Western donors, the former’s flows inhibit broader economic reform. The findings are robust to alternative specifications, data, instruments, and approaches.