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The effects of Chinese aid on the GDP of developing
African nations
A political economy assessment on the effects of Chinese aid on the GDP of recipient developing countries
Master thesis Political Science – International Relations The political economy of China’s rise
Paul-Josse Zaman (10674667) Supervisor: Mw. dr. J. Bader
Second reader: Dhr. dr. L.W. Fransen 26/06/2015
Abstract
This study analyses the effects of Chinese development aid on African developing nations. The amount of Chinese aid to recipient countries has multiplied by over ten times in the time period of 2000 to 2011. However, Chinese aid is often labeled as rogue aid because of the self-interested motivations. The Chinese aid allocation program is driven by three main motivations: the need for natural resources, leveraging money and the pursuit for international political allies. Because of these motivations, China does not take into consideration issues of governance or political stability of the recipient nation, and thus the results of Chinese development aid might be different to that of traditional donor states. In this study various datasets were used to empirically investigate the effects of Chinese aid on all 54 African recipient nations covering the 2000 to 2011 period. The findings in this thesis indicate that Chinese development aid is beneficial to the GDP of the recipient nation, regardless of their motivations. If the recipient nation is politically stabile, this adds to the effects of Chinese aid and the results have an even higher impact on the GDP growth rate. Overall, it can be concluded that Chinese aid is beneficial to the recipient African developing nation.
Table of Content Acknowledgement!...!4! List of tables!...!5! List of graphs!...!5! List of figures!...!5! 1. Introduction!...!1! 2. Literature Review!...!5!
2.1 Determinants of China’s aid allocation!...!5!
3. Theoretical framework!...!14!
3.1 General effects of aid on economic growth!...!15!
4. Methodology and datasets!...!22!
4.1 Concepts!...!23! 4.2 Sample!...!26! 4.3 Datasets!...!26! 4.4 Data cleaning!...!29! 4.5 Measures!...!30! 5. Empirical research!...!34! 5.1 Descriptive analysis!...!34! 5.2 Regression!...!40! 5.3 Relation!...!43! 6. Findings!...!45! 6.1 Resources!...!46! 6.2 Money!...!47! 6.3 Political considerations!...!49!
6.4 The effects of Chinese aid!...!50!
Conclusion!...!52!
Bibliography!...!55!
Acknowledgement
The research for this thesis was conducted for the UvA thesis project The Political economy of China’s rise. I would like to express my gratitude to my supervisor and teacher dr. J. Bader for the guidance and support. Moreover I would like to thank dr. L.W. Fransen for being the second reader of this thesis. Lastly I express my gratitude towards the staff and students of the Universiteit van Amsterdam for providing me with inspiration and the necessary sources.
List of tables
Table 1: Pattern matrix 32
Table 2: Centrality and dispersion of Chinese aid to African nations 36 Table 3: Centrality and dispersion of GDP in African nations 37
Table 4: Multiple regression model 43
Table 5: African trade partners with China 49
List of graphs
Graph 1: Aid per country 38
Graph 2: GDP per country 40
Graph 3: Relation between aid and GDP growth 41
Graph 4: Moderation effect on the relation between aid an GDP 42 Graph 5: GDP growth and aid per year
List of figures
Figure 1: Conceptual model 23
List of Acronyms
DAC Development Assistance Committee
GDP Gross Domestic Product
GDP per Capita Gross Domestic Product per inhabitant
OECD Organization for Economic Cooperation and Development IMF International Monetary Fund
MDG Millennium Development Goals NGO Non-Governmental Organization NSBSC National Bureau of Statistics of China ODA Official Development Assistance aid
OI Official Investment
OOF Other Official Finance PRC People’s Republic of China
TUFF Tracking Under-reported Financial Flows
USD United States Dollar
VOF Vague Official Finance
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1. Introduction
The Chinese economic activity in Africa increased at a rapid rate. The amount of Chinese investments, import and export trade and bilateral agreements in Africa have proliferated over the past ten years (Taylor, 2006; World Bank, 2015). The increased Chinese influence has a tendency to focus on African developing countries (Alden, 2005). Along with these relatively new Chinese investments in African nations, comes a considerate amount of Chinese development aid. The average amount of Chinese aid given to African states has increased with over eleven times the amount of 2000 to 2012 (World Bank, 2015). Development aid takes a pivotal role in the international economic and political world (Dreher & Fuchs, 2012).
A consensus was established amongst development experts that aid has positive effects on the recipient country (Ekanyake, 2010; Karras, 2006; McGillivray, 2006). Aid can increase investment in human and physical capital, increase the capacity to import capital or goods and investments in technology as well as enhance the productivity of capital and promote endogenous technical change (Morrissey, 2001). Nevertheless, the effectiveness of aid depends largely on the quality of governance and political stability of the recipient country (Burnside & Dollar, 1997). If a receiving nation has good fiscal monetary and trade policies, aid is positively effective, if it does not have these policies or is politically unstable, aid is much less effective. Given these considerations, it is important that the aid-supplying state takes into consideration matters of good governance.
However, Chinese aid is frequently labeled as rogue aid, meaning that China's aid-allocation is guided by China’s own interests (Dreher & Fuchs, 2012) It is a frequently heard criticism that the People‘s Republic of China (PRC) does not take into considerations issues of governance because the PRC’s motivations are driven by self-interest (Taylor, 2006; Naim, 2007). Given these considerations, this study investigates the effects of Chinese aid on the economic growth of the recipient country and the mechanism between Chinese aid and the Gross Domestic Product (GDP). Therefore, the research question is formulated as follows: What are the effects of Chinese aid on the GDP of developing African nations?
Some claim that labeling aid from China as rogue aid, is unjustified (Dreher & Fuchs, 2011; Berthélemy, 2009). These authors argue that China does not pay substantially more attention to politics or natural resource endowments than other donor nations. Indeed a vast amount of literature on aid allocation states that aid is often supplied for political and economic reasons, instead of according to the recipients need (Neumayer, 2005; Dreher, 2012; Kilby, 2009).
In a nutshell, this summarizes the discourse amongst scholars on Chinese development aid. On the one hand, some claim that Chinese development aid is motivated by resource endowments and not guided by the recipient’s need, and on the other hand, others claim that other traditional donor states are just as guided by politics or resource endowments as China is (Taylor, 2006; Naim; 2007; Dreher & Fuchs, 2011, Berthélemy, 2011). In this thesis the term traditional donor countries is used as a synonym for donor countries that are associated with the Organisation for Economic Co-operation and Development (OECD).
Nonetheless, these authors do agree on the fact that China is, to a certain extent, guided by a sense of self-interest in a political and economic way. This is also the point of view that was taken in this thesis. China’s motivations to supply aid are the desire to obtain raw materials, money and international politics (Naim, 2007). If Burnside and Dollars (1997) argument were followed, it could be stated that Chinese aid has different effects because it does not take into consideration issues of good governance.
This research question in this thesis investigates the possible correlation between Chinese aid and the GDP of the recipient country. There is an emphasis on the word ‘possible’ because no such correlation or causation is stated before the empirical analysis. It is on the basis of previous literature that a distinct connection between Chinese aid and GDP growth is expected, however this has not been proven (Naim, 2007; Taylor, 2006).
In order to address the gap in the literature on the direct effects of Chinese aid on GDP growth on African developing nations that receive Chinese aid, this quantitative study was performed with a panel of 54 African developing nations that received Chinese aid. This means that all African nations where involved in this research, as there are 54 African sovereign states. It is important to note that no research has been previously conducted with the same panel of states and the same variables in the same time period. The connection between the independent variable
Chinese aid and the dependent variable GDP growth with political stability as a moderator was measured.
The findings of this study were theoretically and empirically researched. A general division can be made between two connected concepts: the motivations of China’s aid allocation and the effects of Chinese aid on GDP. In the literature review it became clear that the PRC’s aid allocation does consist of self-interested motivations. The main motivations are the desire to obtain raw materials, money and international politics (Naim, 2007). A charitable development aid program is a sound way of ensuring the goodwill of resource-rich nations, and thus in persuading them for resource endowments. Furthermore the PRC is leveraging money to ensure its access to raw materials. Lastly allocating a generous aid program can benefit the PRC’s international political support with allies (Naim, 2007).
The effect of Chinese aid on the GDP of developing African nations was researched by using a quantitative analysis. The connection between Chinese aid averaged per country over the time period 2000 and 2011 was compared with total GDP growth in USD averaged per country over the same time period. The Forum on China-Africa Cooperation and its follow-up actions became an effective system which introduced a structure for a new type of China-Africa partnership including long-term stability, equality and mutual benefit (China's African policy, 2006). As this mechanism was launched in 2000, that particular year has been chosen as the starting point of the analyzed period of time in this study. The data on GDP growth by the World Bank was available until the year 2011 which is the end point. A general conclusion is that Chinese aid indeed had a positive effect on GDP growth in the time frame of 2000 to 2011 on an average of the panel of 54 developing African nations.
Following Burnside and Dollar’s argument (1997), a third moderating variable was added: political stability and the absence of violence. According to Burnside and Dollar (1997), aid has most beneficial effects if the recipient country is politically stable. This study investigated the moderation effect of political stability on the relationship between Aid and GDP Growth. Political stability was expected to positively moderate this relationship.
Therefore a preliminary conclusion is that Chinese aid has positive effects on the GDP of the recipient developing African country. Political stability of the recipient country increases the effect of Chinese aid positively. A combination of Chinese aid with a politically stable recipient country renders for a high positive effect on GDP.
As mentioned previously, this study illustrates a general division that can be made between the motivations of China’s aid allocation and the effects of Chinese aid on GDP. In the literature review, the second chapter of this thesis, the existing scientific debate is presented. It also provides in a motivation and explanation of the gap in the literature.
In the third chapter the theoretical framework is discussed. The general backbone of the empirical research and the analysis is sketched. More importantly, the general positive effects of aid are claimed. As the effects of aid can hypothetically swing from negative to positive, no hypothesis was formed for this study.
In the fourth chapter the methodological approach is explained and the datasets are justified. Additionally, the key concepts are explained. In this thesis the term ‘aid’ is used as an overall definition that includes all forms of projects, financial aid or loans. The definition of aid is used in this thesis is the following: a voluntary transfer of resources from one state to the other.
The empirical research is subsequently presented in the fifth chapter. At first the descriptive statistics of Chinese aid, the independent variable, and GDP growth, the dependent variable are presented. The variables were operationalized using the average scores over the time period studied per country, which represents the unit of measurement in thus study. Based on dispersion measures, and more specifically the outliers and the extreme scores, nations that received the highest amount of Chinese aid are named. These findings are then linked with the theoretical framework as they reflect the motivations driving Chinese decision-making in the field of aid-allocation. Lastly, the main and the moderation effects are tested with the use of regression analysis along with the scatter plot revealing the relationship between Chinese aid and GDP growth. Ultimately the results are interpreted based on the theoretical considerations and previously discussed literature in chapter 6.
This thesis will conclude by summarizing the main findings, naming its limitations and providing recommendations for further research.
2. Literature Review
The key focus of this thesis is on the effects of Chinese aid on the GDP of developing recipient nations in Africa. When assessing these effects it is important to take into consideration China’s motivations to provide aid as they are said to influence the effects of Chinese aid (Naim, 2007). In this literature review the motivations of China’s aid allocation are discussed. China’s motivations to provide aid and the determinants of their aid allocation are subjects of an on-going discussion amongst scholars. This discussion is divided into two clusters. On the one hand scholars claim that Chinese development aid is motivated by resource endowments and not guided by the recipient’s need, and on the other hand there are those that claim that traditional donor countries are just as guided by politics or resource endowments as China is (Taylor, 2006; Naim; 2007; Dreher & Fuchs, 2011, Berthélemy, 2011). This literature review will present the on-going debate on this matter.
2.1 Determinants of China’s aid allocation
There has been a significant increase of Chinese economic activity in sub-Saharan African nations. The amount of investments has increased over the past twelve years, and the total of Chinese aid has grown ten times in size from 2000 to 2011 (Tierney at al., 2011). However, these Chinese investments and aid are driven by self-interest and the need for resources (Taylor, 2006).
The People’s Republic of China’s (PRC) motivations to provide aid is threefold: the desire to obtain raw materials, money and international politics (Naim, 2007). The first motivation is the desire to gain natural resource endowments. A generous foreign-aid program is a good way of ensuring the goodwill of resource-rich nations and the possibility to gain resource endowments (Naim, 2007). The most important factors in that matter are oil and petro power (Taylor, 2006; Naim, 2007). However also other natural resources such as copper and other minerals need to be secured (Lengauer, 2011). Furthermore it is argued that China’s foreign oil strategy consists of two main points. The first point refers to ensuring that the PRC has large amount of oil reserves.
The second point corresponds to the PRC's will to play a pivotal role in the global oil market. It has been estimated that in 2011 China was the world’s largest energy consumer, with a 19% share of the global total, after exceeding Japan and United States of America (Lengauer, 2011). It can be thus stated that the allocation of Chinese aid is deeply intertwined with the global Chinese oil strategy.
China is extracting unexploited energy sources, timber and fisheries, which they access through formal or informal means. According to Alden (2005), a rise of 10 billion to 30 billion USD in total trade value between 2000 and 2006 took place.
The second motive of China’s foreign aid is related to money. Naim defines this reason as follows: “The coffers of China’s Central Bank are bursting with nearly 1.1 trillion USD in foreign exchange reserves, the world’s largest stash” (2007). The PRC is leveraging this money to ensure its access to raw materials.
The third motivation of Chinese aid provided to African states is located in the field of international politics. The People’s Republic of China might be looking for political support in developing nations. Allocating a generous aid program can benefit the PRC’s international political support with allies. The increased influence in Africa by the Chinese might be a way of looking for global political support and asserting leadership (Naim, 2007).
A Chinese strategy is to level China with developing states. Chinese officials say that, even though they went through a period of growth, they are still a developing country. By stating this, China puts itself on the level of developing countries and it is not on the side of western developed states. By conducting this strategy it is easier for them to find economic or political allies amongst developing nations.
The PRC’s diplomatic and political objects include the isolation of Taiwan. One of China’s goals was to compete with Taiwan for recognition. As only four of 48 sub-Saharan African nations have official ties with Taiwan nowadays, it can be perceived as China's success in this matter (Lengauer, 2011). Furthermore China was garnering for support in international institutions, like the United Nations (Lum, Fischer, Gomez-Granger, & Leland, 2009).Moreover the Chinese authoritarian regime type can function as a progress model for developing states (Bader et al., 2010). Even though there is no unanimous consensus on this point, some authors argue that the PRC is a model of development for African elites, with a common history of exploitation that China managed to escape (Alden, 2005). China has a focus on resource acquisition, with opportunism that belies the rhetoric of partnership.
China’s transformation of an exploited nation to a developed nation is much admired by visiting African delegations and an understandable source of pride for China. Therefore China also serves as a role model for African elites and by supplying in large amounts of Chinese aid, the PRC strengthens this position (Alden, 2005).
Next to the economic and political motives, the ideological motives also need to be addressed (Lengauer, 2011). Acquiring and maintaining a positive image within African recipients’ countries is decisive, as China's economic and political input has been increasing rapidly in the last decade. The ideological motives are based on spreading Chinese values and thus increasing China’s soft power and expanding its international influence through aid (Lengauer, 2011). This ideological and cultural reason driving China's motivations to provide aid to African nations can be seen for instance in many Confucius Institutes in Africa. Confucius Institutes are public educational organizations associated with the Ministry of Education of the PRC aiming at promoting Chinese values (Lengauer, 2011). It has been found that by the end of 2011 there were 28 Confucius Institutes in 19 African nations with over 8000 African students learning Chinese in Africa (Wheeler, 2014). Subsequently, this impact on the education level in African recipients states contributes to their development and ultimately to their overall GDP growth.
Nevertheless, once the Chinese aid is allocated, determining its results and assessing its effect remains somewhat a complex and puzzling question. It is argued that African leaders are more likely to spend Chinese development aid in areas where they have ethnic ties, as stated in a recent report published by Aiddata (Dreher, Fuchs, Holler, & Parks, 2014). This casts doubt on the humanitarian effectiveness of Beijing’s strict ‘hands-off’ policy concerning foreign development aid. Interestingly, China says it spends more than half of its foreign aid in 54 African nations; this is a total of 80 billion USD in projects between 2000 and 2012. Economics professor Hodler from the University of St Gallen indicates that the birthplace of an African president gets 270% more development assistance than it would get otherwise (Dreher et al., 2014).
Most Chinese aid in Africa is not official aid but business-related export credits borrowed by governments to finance infrastructure projects of various kinds (Dreher et al., 2014). These development agendas and China’s foreign aid policy are subjected to on-going discussions. The foreign development aid policy of China is built on the Five Principles of Peaceful Coexistence (Taylor, 2006). This is a specific set of principles to govern relations between states which consists of: mutual respect for each other’s territorial integrity and sovereignty, mutual non aggression, non interference in each other’s internal affairs, equality and cooperation for mutual benefit and peaceful coexistence.
Furthermore, China is not a member of the Organisation for Economic Co-operation and Development (OECD), and thus does not have to obey to the rules of their Development Assistance Committee (DAC) on foreign aid. Therefore Chinese aid is different compared to aid from traditional donor countries. In certain ways, Chinese foreign assistance resembles characteristics of foreign investment (Landauer, 2011). The PRC claims to have the same aid development goals as the OECD, however China also operates under a number of self-prescribed rules. These rules are published in white papers (2011) and declare that one of the main purposes of Chinese aid is to foster self-reliance of the recipient country. This implies a motivation grounded in non-self interested motivations, but as these rules are self prescribed, there is no independent entity controlling them. Furthermore, some if these rules concretely state that the PRC should benefit as well from the supplied aid and its returns to investment.
The rules are known as the Eight Principles for Economic Aid and Technical Cooperation to other countries (Lengauer, 2011). These principals comprise of inter alia the following items: quality and mutual benefit of donor and recipient country: interest-free or low-interest loans; development projects are carried out with Chinese equipment; the main purpose of aid is to foster self-reliance of the recipient country which is ensured by supporting projects that yield quick results in order to increase revenues and accumulate capital of the recipient country; non-interference in internal affairs and respect for the state sovereignty of the recipient country by not attaching any conditions to aid (Lengauer, 2011).
The non-interference policy of China is a recurrent topic amongst scholars. Together with the growing and deepening Sino-Africa relations, comes criticism on China’s non-interference policy in the continent (Aidoo, & Hess, 2015). The Chinese hands-off non-interference policy represents a contrast between the conditionality of the International Monetary Fund (IMF) and the World Bank versus unconditional Chinese loans.
There is consistent support for the rhetoric of non-interference, mostly by the Southern states (Aidoo, & Hess, 2015). However the implementation has become varied and contextualized by Africa’s political and economic diversification. They argue that the hands-off policy is and ‘opportunistic and inconsistent instrument for enabling China’s increasing access to African resources and markets’ (Aidoo & Hess, 2015: 11).
Intertwined with the foreign development aid policy is China’s go out policy. The go out policy is China’s strategy to increase the amount of investments overseas. The program was launched in 1991 and had five main goals: to increase Chinese Direct Foreign investment (FDI), to have a diversification of products, improve the level and quality of projects abroad, expand financial channels with respect to the national market, promote brand recognition of Chinese companies in EU and US markets. China further opened up its market by joining the World Trade Organization (WTO). By doing so, it created a demanding scene of the international companies competing for business in the Chinese market. To compete with these international companies, China equipped the domestic firms with international experience so they are better skilled for the competition at China’s own domestic market.
By arguing that China’s foreign aid policy is not purely peaceful, Naim (2007) warns for the dangers of Chinese aid. China’s distribution of unconditional aid undermines Western values like democracy and good governance (Naim, 2007). China’s funding of infrastructure projects on itself already has proliferated from 700
million USD in 2003 to 3 billion USD in 2006. According to Naim (2007), ‘China is
enormously generous, toxic and a rogue donor’ (p. 96). The aftermath of the rogue aid supplied by China and the effect of undermining Western values can be seen as the source of concern and the aid as a threat to healthy sustainable development. Naim (2007) stated that China, amongst others, has the “cash and the will to reshape the world into a place very different from where the rest of us want to live” (p. 96).
Directly opposed to the claim that China’s aid is led by self-interest, is the claim that this might be so, but it is true for many other donor countries as well. Dreher and Fuchs (2011) argue that political considerations are just as important to China as to other donor countries. They conducted an econometric study in which they empirically tested the determinants of China’s allocation of project aid, food aid, medical staff, and total aid money to developing nations. The results revealed no evidence that China’s aid allocation is dominated by natural resource endowments. In an earlier research Dreher et. al (2011) say that new donors attach less importance to recipient need than Development Assistance Committee (ODA) donors when allocating aid. However, their general conclusion is that political considerations are just as much of an important determinant for aid allocation as it is to other donor countries. One of the mechanisms pointed by Dreher and Fuchs (2011) is the development aid playing a pivotal role as an economic reward and punishment between nations.
Following that argument, Berthélemy (2011) has also stated that China’s aid allocation is not more driven by self-interest than any other donor country. The core of financial engagement in Africa is frequently in countries with which China has strong political relations or in nations that are rich in resources. Even though the findings proved the Chinese practice to supply aid to be originating from self-interests, they also proved that many other states’ decisions are self-interests driven (Berthélemy, 2011)
Berthélemy (2011) discussed the allocation of Chinese aid, the re-indebtedness of African countries borrowing to China and the growing importation of Chinese products in Africa. The latter can be interpreted as a positive effect on African economies, because it is trade creation instead of trade diversion. None of the various dimensions of Chinese engagement has had a significant neither positive nor negative impact (Berthélemy, 2011).
Nevertheless, the core of Chinese financial engagement in Africa is very often directed to countries with which China has strong political relations (Mali, Tanzania) or in countries that are rich in resources (Angola, Nigeria, Congo). China pursues its own economic interests in its engagements in Africa, just like other bilateral donors (Berthélemy, 2011). Berthélemy argues that it is a common practice to supply aid out of self-interest. Other ODA-countries have had a significant self-interest in supplying aid. This is in an economic financial way, but also in a political strategic way
(Berthélemy, 2011).
It has been established that China’s aid allocation is largely motivated out of self-interest. However the motivations of allocation also affect the effects of aid and therefore needs to be taken into account. The Chinese aid may have a different impact because of their motivations. There are several potential reasons which need to be underlined.
Firstly, Chinese foreign development aid is distinct of other donor’s aid because it is made available relatively fast. There are less political, economic, social and environmental bureaucratic procedures accompanying Chinese aid, compared to traditional donor countries (Lum, Fischer, Gomez-Granger, & Leland, 2009).
Secondly, the PRC frequently promotes economic projects in nations and regions where traditional donor countries do not interact. Developed country governments and large multinational corporations tend to avoid unfriendly or corrupt states, however China does not hold back to supply with development aid in these nations (Lum, et al., 2009). The Chinese non-interference program dictates that China should not interfere with issues of governance of the recipient country. Due to China's ignorance towards issues of corruption or bad governance of the recipient country, the effects of Chinese development aid may change. This point will be more elaborated on and detailed in the following chapter, the theoretical framework.
Thirdly, in line with the Eight Principles for Economic Aid and Technical Cooperation to other Countries, China requires equality and mutual benefit of donor and recipient country to be ensured. Partly because of this reason, all Chinese development projects are carried out with Chinese equipment and personnel. China ensures to support projects that have fast results so it can increase revenues and accumulate the capital of the recipient country and China (Lengauer, 2011).
Those three matters provide the explanation to why the motivations of China’s allocation may result in a different type of aid, which would then lead to different effects of Chinese aid on GDP growth than traditional donor’s aid.
With regards to the methodological approaches of the discussed authors, only Dreher and Fuchs (2012), and Berthélemy (2011) used quantitative methods. This is of interest, as this thesis’ research is also conducted quantitatively. Dreher and Fuchs (2012) used a method in which they compare the determinants to its allocation with both traditional and other new emerging donor countries. Berthélemy (2011) has argued that some data is simply not available. Therefore, the data on contracted
projects with Chinese companies as a proxy for aid was used, given that aid is usually tied to contracts with Chinese companies.
The datasets that Dreher and Fuchs (2012) used comprise: the amount of aid projects completed by China, the estimated amount of Chinese total foreign aid in USD, the data on the number of medical staff that has been dispatched, and a dataset on food aid by the world food program.
Berthélemy (2011) argued that the aid given by China is rather different from other donor countries. Chinese aid is usually tied to contracted companies, which made him interpret the growing imports from China and turnover of economic cooperation with China as relevant signals of engagement. A side note must be made that it is difficult to disentangle the effect of true aid flows from the effect of other financial flows, but no data source provides exact accurate data on aid flows compatible with the definition of the Development Assistance Committee, their Official Development Assistance aid (ODA) (Berthélemy, 2011).
The scholarly contribution of this thesis lies in the methodology of research. Much of the available literature is based on literature reviews or qualitative research. Only a few contain substantial quantitative methodology. By conducting a quantitative research on the effects of Chinese aid some new insights are retrieved. The quantitative research in this thesis was performed with a panel of all 54 African aid-recipient countries.
Chapter conclusion
In this chapter China’s motivations to provide aid and the determinants of China’s aid allocation have been discussed. Taylor (2006) and Naim (2007) argue that China’s aid allocation is motivated by self-interest. This is the point of view which is supported in this thesis and on which the research is build. Because of the Chinese self-interested motivations, the desire to obtain raw materials, money and international politics (Naim, 2007), the Chinese aid can have different effects than that of tradition donor countries.
The reason why these motivations affect the effects of Chinese aid are: Chinese foreign development aid is faster than traditional donor aid, the PRC does not take into consideration issues of governance, the PRC always requires a mutual benefit for the donor and recipient country (Lengauer, 2011). A side note has to be made that it has proven to be empirically difficult to prove the direct effects of aid.
The motivations of Chinese aid and why these affect the impact of aid is further discussed in the subsequent chapter, the theoretical framework.
3. Theoretical framework
In this theoretical framework the essential background information and general effects of aid are explained. Furthermore the specifics of Chinese aid and the result of their aid allocation are analyzed.
The general effects of aid according to secondary literature are presented. The key question discussed in this chapter is whether aid has any effect on the recipient country and its level of poverty. Amongst scholars a general consensus exists that aid has positive effects on economic growth of the recipient country (Ekanyake, 2010; Karras, 2006; McGillivray, 2006). However the quality of governance of the recipient country matters largely to the effectiveness of aid. If the recipient state has a good fiscal monetary and trade policy and is politically stabile, aid is much more positively effective (Burnside & Dollar, 1997). Aid positively affects the economy of the recipient country in three ways: it increases investment in human and physical capital, it enhances the capacity to import capital or goods, and proliferates investments in technology (Morrissey, 2001). These increase the productivity of capital and promote endogenous technical change.
Chinese aid is said to be different from aid supplied by western institutions or countries, not only because the PRC has different aid-allocation incentives, but also because of the way the Chinese supply aid. Chinese aid often takes form of infrastructure or technological projects (Taylor, 2006; Naim, 2007). The Chinese incentives and the Chinese aid projects are analyzed, because the way aid it is distributed by China is of importance for its effects. This chapter provides the theoretical framework for the subsequent analysis. It argues why Chinese aid is expected to affect the economic growth positively if a good quality of governance of the politically stable recipient nations is maintained.
3.1 General effects of aid on economic growth
In order to analyze the effects of Chinese aid on GDP, first the general effects of aid on the recipient countries’ economy need to be discussed based on previous research and literature. According to Ekanyake (2010), the main role of foreign aid is ‘stimulating economic growth and to supplement domestic sources of finance such as savings, thus increasing the amount of investment and capital stock’ (p. 2). It is important to understand the contribution of foreign aid to the economic growth of developing countries, because of its implications for poverty reduction in developing countries. However there are many factors affecting the economic growth and thus the Gross Domestic Product (GDP) of a country. Therefore a short theoretical introduction to the GDP is given.
The GDP is a way of measuring growth with an earlier point of time. Two possible types of economic growth can be distinguished, namely: extensive and intensive growth. Extensive economic growth refers to the situation when the economy growth is due only to the proliferation of the population. Intensive economic growth means that the actual welfare per capita increases. Economic growth is caused by an increase in aggregate or aggregate supply. Short term GDP growth can be caused by, for example, increased wages, lower interest rates, increased government spending, or increased consumer confidence (Irmen, 2004). Long-term economic growth can be caused by increased capital such as new factories or investment in infrastructure, increase in working population, and by increase in labor productivity through better education or improved technology (Irmen, 2004).
However, it should be noted, that if the GDP increases, it does not necessarily mean that the average welfare of the inhabitants will increase as well. There are other potential explanations explored in previous research such as increase or decrease in inhabitants, initial values of per capita income, the ratio of government expenditure to GDP and the rate of inflation (Demetriades, & Hussein, 1996). This list can be completed in line with the exhaustive study by the World Bank which analyses the GDP of the complete list of countries in the world by numerous indicators (The World Bank Group, 2015). As stated in the World Bank study (2015), the indicators accounting for GDP growth are as follows: agriculture, cash surplus/deficit, central
government debt, gross savings, imports of goods and services, industry, inflation, export of goods and services, external debt stocks foreign direct investments, the total reserves, received remittances and of course the net Official Development assistance. Given the economic focus of provision we should be able to see an effect on growth rather than on other indicators. In this thesis the focus is on the indicator of Official Development Assistance.
A key question in this research is, whether aid has any effect on the recipient country and its level of poverty at all (Ekanayake & Chatrna, 2010). Ekanyake (2010) argues that many developing countries are in an ongoing battle with severe debts and are strictly dependent on their financial aid flows. It is expected that aid has a positive effect on capital-poor countries (Ekanyake, 2010). However, there are many factors impacting the effectiveness of aid. This complexity is reflected in a considerate amount of literature on the topic which draws distinct perspectives and has no clear or definite answer. Nonetheless, many authors agree with the fact that aid has to some extent positive effects (Ekanyake & Chatrna, 2010; Karras, 2006; McGillivray, 2006, Burnside & Dollar; 1997). Previous research found a permanent positive effect of foreign aid on economic growth: by the rise of foreign aid by 20 USD per capita of the recipient country this subsequently led to a permanent increase in the growth rate of real GDP per capita by roughly 0.16 percent (Karras, 2006). That particular research was conducted using annual data measuring GDP growth per capita from 1960-1997 amongst 71 aid-recipient countries. Moreover, McGillivray (2006) shows that aid to African countries does not only proliferate economic growth but it also decreases poverty. Aid is seen as positively impacting public sector aggregates, contributing to higher public spending and to lower domestic borrowing (McGillivray, 2006).
However, simply increasing the amount of aid and pumping financial injections in developing countries does not represent an optimized solution as aid should be spend effciently (Easterly, 2008). An interesting trend of the never-ending call for more foreign aid has emerged which is almost universally accompanied by a discontent with the effectiveness of the existing aid system (Easterly, 2008). Following the rationale of previously mentioned authors, Easterly (2008) concludes that, if well managed, aid has to a certain extent a positive effect. One of the main criticisms is directed towards aid agencies and states that they should be more modest in their objectives instead of misspending much effort and finance in looking for ‘the
Next Big Idea’ enabling aid to buy growth as there are huge differences between developing nations (Easterly, 2008). Easterly (2008) states that “the international aid agencies could evolve into more effective and more accountable agencies, much like national governments in the now-rich countries gradually evolved from gangs of venal scoundrels to somewhat more effective and accountable civil servants (…) In any case, improving quality of aid should come before increasing quantity. This step is difficult but not impossible.” (p. 40).
Burnside and Dollar (1997) examined the relation between foreign aid, economic policies and GDP growth per capita. They found that aid has a positive impact on economic growth in developing countries that have a good fiscal, monetary and trade policy. However, they also found that aid has les positive effects on growth if these policies are incorrectly managed. This is a very important finding as it might be a key factor contributing to explanations of different effects of Chinese aid. Three policies that have the largest effect on growth can be distinguished: fiscal surplus, inflation and trade openness (Burnside, & Dollar, 1997). Based on an estimated aid allocation equation, it can be shown that any tendency characterizing aid allocations is often overruled by the donor’s pursuit of their own strategic interest, which is frequently said about China’s aid (Burnside, & Dollar, 1997). This general critic about China's aid allocation, which is out of self-interest, contributes to the debate between two opposing views. On the one hand, aid is claimed to support large and inefficient governments that create a bad environment for economic activity but on the other hand, aid agencies like the IMF and the World Bank foist structural adjustment policies on unwilling recipient countries and these policies do not succeed in achieving the promised benefits (Burnside, & Dollar, 1997).
Burnside and Dollar (1997) found that there are countries that have received large amounts of financial aid for extensive periods of time but did not grow economically in the same period of time. This argument is supported by a quote of the American Enterprise Institute originating from a testimony to the Senate Foreign Relations committee: “ Enormous and steady flows of concessional external finance from developed countries have permitted governments to pursue development policies that have been wasteful, ill conceived or even destructive” (Burnside, & Dollar, 1997, p. 1).
Thus, how can aid be more effective? Burnside and Dollar (1997) looked specifically at the effects of foreign aid on growth. They introduce economic policies in their equations. They found that aid does have a positive effect on growth in the presence of good economic policies, and that donors do not always systemically allocate assistance in favor of good policies. These findings are of particular relevance to the case of China and therefore should be taken into consideration when analyzing the effects of Chinese aid.
According to one of Burnside and Dollars’ neoclassical models (1997), poor countries should have a high return to capital and a fast growth rate in transition to the steady state. Nevertheless, due to the imperfections of international capital markets, poor countries grow economically slow, despite the high return to investment. If this is taken into consideration, developmental foreign aid can accelerate the rates of growth when a state is in a transition to a steady state (Burnside, & Dollar, 1997).
Burnside and Dollar (1997) reported that the partial correlation of aid and policy after controlling for income level and population is insignificant which illustrates that donor interest variables appear to overwhelm the effort to reward good policy. The study found that multilateral aid, which is largely a function of income level, population, and good policy, is influenced by the donor interest variables (Burnside, & Dollar, 1997). A recipient country’s growth rate depends on initial income, institutional and policy distortions, aid and structural adjustment programs. Foreign aid has a positive effect in a good policy environment with a politically stable government. Burnside and Dollar (1997) found that if a country has a good policy and receives abundant aid (3-7% of GDP) it performs well.
When assessing the concept governance, it needs to be stated that it is empirically difficult to measure governance. It is an abstract notion with many factors contributing to either good or bad governance. The World Bank constructed a database for governance, which comprises 215 economies over the period 1996 to 2013, and this is measured using six dimensions. These dimensions are called World Governance Indicators (WGI) and are as follows: voice and accountability, government effectiveness, regulatory quality, rule of law, control of corruption and political stability and absence of violence (World Bank, 2012). Governance is a combination of the institutions and traditions through which authority is exerted. The process by which governments are chosen, monitored and substituted is part of these
traditions and institutions. Furthermore the capacity of authorities to compose and apply good policies adds up to the level of governance (Kaufmann et al., 2010). However, if a country has bad policies or socio-political instability, this creates a political and economic uncertain environment which results in a reduction in investment and a decline in GDP or GDP growth (Alesina & Roberto, 1995). Since investment is one of the driving factors of economic growth, political stability can greatly affect economic growth. Therefore, political stability and GDP growth are inversely related (Alesina & Roberto, 1995). Additionally, the impact of aid was found to be greater for a low level of policy disturbance than for a high level of policy disturbance (Burnside, & Dollar, 1997). In fact, politically unstable countries do not render large effects of development aid (Alesina & Roberto, 1995). Based on these findings, political stability was chosen as an indicator on the relation between aid allocations and GDP growth.
Political stability and the absence of violence is one of the World Bank’s World Governance Indicators. Therefore in this thesis political stability and the absence of violence is used as an indicator for measuring the effects of governance on received Chinese aid. Political stability is expected to have a moderating effect on the relationship between Chinese aid and GDP growth and therefore is used in this study as the moderator. This will be more elaborated on in chapter 4.
As stated previously, the possible correlation between the variables aid and GDP growth is examined, but political instability reduces the effectiveness of aid significantly (Burnside & Dollar, 1997). Following that rhetoric, political stability as one of the governance indicators was added to the conceptual model in this study. Political stability and the absence of violence or terrorism captures the perceptions of the likelihood that the government will be destabilized or taken over by any forms of violence, including politically motivated aggression and terrorism (Kaufmann, Kraay, & Mastruzzi, 2010).
With regards to the mechanism underlying the concept of aid, Morrisey (2001) found three patterns. Firstly, aid increases investment in physical and human capital, secondly, aid increases the capacity to import capital, goods or technology, and lastly, aid is associated with technology transfers that increase the productivity of capital and promote endogenous technical change (Morrissey, 2001; Ekanyake, 2010). In order to explain the first mechanism Morrissey (2001) uses a neo-classical growth model by Solow. The Solow model states that human capital, in particular technology, increases
the productivity of labor. It shows that if aid increases labor productivity it can also increase the long-run growth rate of per capita income (Morrissey, 2001). The second general effect of Morrissey’s (2001) theory is that aid increases the capacity to import capital goods or technology. These new growth models are used to demonstrate that imported capital goods which are financed by aid can lead to long-run growth rate, thus in turn leading to higher export value and products (Morrissey, 2001). The third mechanism refers to aid being associated with technology transfers that increase the productivity of capital and promote endogenous technical change. Morrissey (2001) incorporated the concept of endogenous technical change. Even though human capital plays an important role, the emphasis is put on technological change, research and development and the positive impact of new technology (Morrissey, 2001).
Another factor, which might influence the effects of Chinese aid, corresponds to the way it is provided. In other words, the forms in which China supplies development aid. China has a strong focus on infrastructure projects. In the period 2002 to 2007 PRC loans comprised about 43% of infrastructure development projects. Investments in infrastructure provide in a direct input to increase growth, because good infrastructure helps developing local markets (Lum et al., 2009).
Furthermore, China often uses national or semi-state owned companies to perform aid-supplying activities. In the Eight Principles for Economic Aid and Technical Cooperation it is clearly stated that all Chinese development projects need to be carried out with Chinese equipment and Chinese personnel (Lengauer, 2011). These companies are often semi-state owned companies which means that they are not fully controlled by Chinese government, but there is an intertwined connection and the company and the government share the same interests. These companies represent a form of hybrid corporate governance, public administration and regulation (Hults, 2012). Contracting these semi-state owned Chinese companies is a strategy of the PRC to make sure Chinese personnel and equipment is used, which generates financial income. Moreover, by doing so, China ensures development and infrastructure projects that show fast results. These fast results can increase revenues and accumulate the capital of China. Both factors, the focus on infrastructure projects and the employment of Chinese companies, result in more income for China out of development deals which contributes to the expectation that the Chinese motivations of their aid allocation are based on self interest.
Chapter conclusion
There is a general consensus among scholars that aid has positive effects on economic growth. Aid can positively affect the recipients’ economy in three ways: aid increases investment in human and physical capital, the capacity to import capital or goods and investments in technology increases, and the productivity of capital is improved which promotes endogenous technical change (Morrissey, 2001). If a country has good fiscal monetary and trade polices, aid is more effective (Burnside & Dollar, 1997). If the country has bad policies however, aid has less substantial positive effects. In addition, based on Taylor (2006) and Berthélemy (2011) China’s aid is incented by self-interest and Naim (2007) argues that the Chinese do not take into consideration issues of good governance. Due to the importance of a good and stable governance of the recipient state, when assessing effectiveness of Chinese aid, the concept of political stability was added to the conceptual model of this study. Providing more money will not be useful, the aid has to be organized more effectively with good governance on the recipient side (Easterly, 2008).
Given these considerations it is hard to provide in a sturdy hypothesis. Because of the empirical character of this research, it is hypothetically possible that Chinese aid has positive effects, however it is also hypothetically possible it does not have any positive effect. Therefore no hypothesis is formed in this thesis and the analysis will be based on the empirical research. The empirical research is documented in chapter 4 followed by the analysis discussed further in chapter 5.
4. Methodology and datasets
In this chapter the methodological approach of this research is presented. As mentioned in the previous chapter the political stability of the recipient country is important for the effectiveness of aid. In this thesis political stability and the absence of violence or terrorism is used as a proxy variable for the quality of governance. Firstly, in paragraph 4.1 the definitions of the key concepts and main actors in this study are introduced. Moreover, different ways of measuring Aid, as used by Aiddata, such as Official Development Assistance (ODA), or Other Official Finance (OOF) are explained. Furthermore, the rationale for the choice of the GDP measured in current US dollars is presented. The relation between political stability and quality of governance is explained subsequently. Secondly, in section 4.2 the sample of the final dataset used for the statistical analyses is described. Thirdly, the following 4.3 section is dedicated to the specifications about the datasets which were chosen for each variable. The datasets were provided by Aiddata and the World Bank and were used for respectively the Chinese aid provided to African countries and the real GDP. Political stability was measured by using the Worldwide Governance Indicators dataset published by the World Bank. The data cleaning section is located in section 4.4. Lastly, the measures of each variable are illustrated in section 4.5.
4.1 Concepts
The main concepts of this study are represented by the variables used in the statistical analyses (see Figure 1). As presented in the conceptual model below, Chinese aid is the independent variable, GDP growth accounts for the dependent variable. The relationship between these two concepts is expected to be moderated by Political stability.
Figure 1.
Conceptual Model
(-)
(+)
The mechanism shown above between the independent, dependent and moderating variable can be explained through an accompanying formula. In the following formula the influencing variables on GDP growth are shown:
!"#!! = ! + !"#
!!+ !"#!!.
In the formula the dependent variable is GDP (jt) and stands for Gross Domestic Product, with t being the factor time, and j the factor country. The constant value is A. Aid!(!) explains the independent variable with t representing time and j country. POL (t) is the moderating variable political stability with t for time and j for country.
! !
Aid
GDP Growth
Chinese Aid
Aid represents the independent variable in the current study and is defined in the field of international relations as: ‘a voluntary transfer of resources from one state to the other’ (Tierney at al., 2011). Aid can cooperate to distinct results: it can be given as diplomatic approval, to strengthen a military ally, out of self interest, to extent the donors cultural influence, to provide the infrastructure needed by the donor or out of resource endowments’ (Tierney at al., 2011). Strandow et al. (2011) explains the term donor as ‘an entity providing development assistance to the recipient country. This can be a sovereign state, multilateral organization, or any other official entity providing development assistance to a recipient country’ (Strandow et al., 2011).
Another concept related to donor aid, which also needs to be taken into consideration, is donor intent. It is most often defined as the perceived intent of the finance provider. In practice, this means also the type of aid provided. Five different categories of types of donor intent are found: development, commercial, representational, mixed (some development) and other mixed with no development (Tierney at al., 2011). The dataset used for further analyses in this study contains all of the forms of aid mentioned above, which are supplied by China to African developing countries.
Five distinct types of aid activities are characterised as follows: official finance, unofficial finance, military finance, cancelled or suspended flows, and suspicious flows (Tierney at al., 2011). For the purpose of this study the first type of aid, official finance will be used. This includes another number of categories: Official Development Assistance aid (ODA), Other Financial Aid (OOF), Vague Official Finance (VOF), and Official Investment (OI). Official finance only includes project records that are not cancelled, suspended, military or sourced from suspicious reports.
A number of the types of aid flows need to be elaborated. Firstly, Official Development Assistance aid, or ODA-like flows, are flows that meet the OECD’s criteria for development assistance (Strandow et al., 2011). Secondly, OOF-like aid is Other Official Finance, consisting of export financing and other activities, which promote the donors commercial interests, and projects that are representational in nature (Strandow et al., 2011). OOF-aid is designed to promote the donor’s culture or deepen institutional ties between both states. Moreover, OOF-like aid can also include developmental loans that are not concessional enough to be considered ODA-like.
Thirdly, Vague Official Finance represents an umbrella category for projects that lack information to be included into ODA-like or OOF-like flows. The data used in this study comprises ODA-like aid, OOF-like aid, Vague Official Finance, and Official investments.
Various ways of measuring the effectiveness of aid can be applied. The World Bank (2015) uses amongst others life expectancy at birth, mortality rate, population, primary completion rate, ratio of boys to girls in primary and secondary education and vulnerable employment. In order to assess the effectiveness of aid in this study, the economic growth was analysed, specifically the total GDP.
GDP Growth
GDP (Gross Domestic Product) is the dependent variable in this study and it is defined by the organization for Economic Cooperation and Development (OECD, 2001) as “an aggregate measure of production equal to the sum of the gross valued added of all resident, institutional units engaged in production, plus any taxes and minus any subsidies, on products not included in the value of their outputs”. The current study uses measures of the total real GDP per capita in current USD, which is broadly employed as the main indicator when assessing the economic position of a country either over time or relative to other countries' positions (van den Bergh, 2010).
Political Stability
Political stability is expected to have a moderating effect on the relationship between Chinese aid and GDP growth and therefore is used in this study as the moderator. As stated previously, the possible correlation between the variables aid and GDP growth is examined. However, based on Burnside and Dollar’s argumentation, the political stability influences the effectiveness of aid substantially (1997). Following that rhetoric, political stability as one of the governance indicators was added to the conceptual model in this study. The indicator Political stability and the absence of violence or terrorism captures the perceptions of the likelihood that the government will be destabilized or taken over by any form of violence, including political motivated aggression and terrorism (Kaufmann, Kraay, & Mastruzzi, 2010).
Political stability and absence of violence or terrorism is one of the six Worldwide Governance Indicators (WGI) used by the World Bank to define governance. Based on the theoretical considerations and previous research, political stability and the absence of violence or terrorism was chosen as most relevant and applicable indicator in this study.
The definition of governance is a key concept for measuring the effects of aid. Governance is a combination of the institutions and traditions through which authority is exerted. Part of these traditions and institutions is the process by which governments are chosen, monitored and substituted. Furthermore the capacity of authorities to compose and apply good policies adds up to the level of governance. Lastly the respect for the state’s own inhabitants and institutions is part of the definition of governance (Kaufmann et al., 2010).
4.2 Sample
Based on the theoretical considerations, the final dataset used for the empirical analyses consisted of fifty-four African countries. All countries being recipients of Chinese aid (N=54) were recruited by the means of the public data accessed online (World Bank, 2012; Tierney at al., 2011). Chinese aid averaged over the time period from 2000 to 2011 per country ranged from 5.5 to 1280.66 million US dollars and GDP growth ranged from 6.47 to 1266.46 million US dollars.
4.3 Datasets
The first part of this section is dedicated to the elaboration on the original datasets used in this study. The mechanism between the independent and dependent variable was analysed by merging three datasets. The datasets used in this research correspond respectively to the independent variable, the dependent variable and the moderator. For Chinese aid, the independent variable, a public dataset provided by Aiddata was used (Tierney at al., 2011). Aiddata is a research and innovation lab that seeks to improve development outcomes by making development finance data more accessible and actionable (Tierney at al., 2011).
The dataset used for this study was retrieved from their website designed to track Chinese development assistance (China Aiddata, 2011). The data used to analyse GDP growth and political stability, the dependent variable and the moderator, were provided by the World Bank (2012). As these datasets offer the most complete and exhaustive resources of public data, they were thus regarded as the most relevant for the current study.
Chinese Aid dataset
The dataset provided by Aiddata is a new database on foreign aid it is based on the method named Tracking Under-reported Financial Flows (TUFF). This method is a systematic and replicable approach to gather project-level development finance information (Stranded et al., 2011). The TUFF-methodology has two main goals: to create a comprehensive scope and to zoom in on project-level detail. The comprehensive scope is gathered by searching active data. Aiddata uses a Dow Jones search engine that draws on 31.000 sources from over 200 countries with pre-selected search terms related to Chinese finance in Africa. Aiddata synthesizes and standardizes project specific information from thousands of English language and Chinese language media reports. They systematically assign values to 57 variables, including flow type, project status and sector (Strange, O’Donnell, Gamboa, & Parks, 2013). The complete list of 57 variables can be found in the Appendix 1 of Aiddata’s Media-Based Data Collection Methodology (Strange et al., 2013). The project level detail is achieved by crosschecking and updating values which are designated to those 57 variables. Aiddata uses triangulation of information from extra sources identified through Google, Badu and other information sources such as Non-Governmental Organizations' (NGO) reports and the NSBSC. They eliminate possible duplicate projects and separates official and unofficial finance. Aiddata tracks the progressions so they can distinguish completed, suspended or cancelled projects.
The dataset used in this study tracks Chinese development finance to African countries from 2000 to 2012, using the TUFF-methodology. The dataset is a detailed project-level database of official Chinese development finance flows to Africa. The database contains over 1952 projects with 3545 geocodes, adding up to a total of 84 billion USD. The full list of countries used in this study is found in Appendix B.
GDP dataset
The dataset for GDP growth was taken from the database of the World Bank. The variable in the dataset used is Gross Domestic Product in current U.S. Dollars. The way the total GDP in current USD is calculated is the sum of gross value added by al resident producers in the African nation’s economy, plus any product taxes and minus any subsidies which were not incorporated in the worth of their products (World Bank, 2012). The World Bank calculated the GDP in total USD without making deductions for depreciation of produced assets or for depletion and degradation of natural resources. The dollar figures for GDP are converted from the local currencies by using single year official exchange rates.
Political Stability dataset
The dataset used for political stability and the absence of violence is provided by public data of the World Bank. It consists out of a research dataset that summarizes the perspectives on the quality of political stability and governance provided by an extensive amount of enterprise, citizen and expert survey respondents in industrial and developing countries. These data are gathered from a number of survey institutes, think tanks, non-governmental organizations, international organizations, and private sector firms (Kaufmann et al., 2010). Political stability and the absence of violence or terrorism is a part of the Worldwide Governance Indicators and constructed with thirty-two underlying data sources. The list of data sources used specifically for Political stability is included in the Appendix A.
4.4 Data cleaning
As the original datasets used larger samples and numerous variables irrelevant to this study, data cleaning is reported in this section.
Chinese Aid dataset cleaning
The dataset used in this study tracks Chinese development finance to African countries from 2000 to 2012, using the TUFF-methodology. The data available of Aiddata is complete until the year 2012, however the last year (2012) was deleted because the dataset of the World Bank only provides data until 2011. In order to compare both variables the same timeframe is used.
It is important to note that the dataset by Aiddata also contained countries which are not located in Africa. These countries where excluded from the dataset. The executed countries where: Bangladesh, Laos, Thailand, Brunei, Vietnam, Cambodia, Timor-Leste, Pakistan, and Myanmar and Malaysia.
Political Stability dataset cleaning
The initial Worldwide Governance Indicators (WGI) dataset comprised the report on six governance indicators for 215 countries over the period 1996-2013. For the purpose of this study 161 countries which were not part of the sample of this study (N=54), were deleted from the final dataset. Subsequently, data for the time period from 1996 to 2000 was cleared. All the values for the year 2001 were defined as missing as they were not provided in the original World Bank dataset.
