Description:

Joris Mueller (Northwestern University) - "China’s Development Assistance and the Role of its Firms "

Abstract: Many countries provide foreign aid to facilitate economic stability and development in poor countries. I posit that donors may also use development assistance to other countries to stabilize demand within their own economies. I study the context of China, which provides much of its official development assistance (ODA) in the form of physical infrastructure, thereby subsidizing and generating business for Chinese contractors and suppliers. Using a novel firm-level dataset, I find that the Chinese government smoothens demand across state-owned firms in strategic sectors by allocating ODA projects to firms that face relatively lower, exogenous demand from other sources. As a placebo check, I show that unsubsidized official loans to the same set of countries and firms do not follow this pattern. I also address potential confounders at the home prefecture-, sector-, and recipient country-level and provide robustness to several other checks.