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Chinese aid is helping African economies, but not in the places that need it most

NASA Earth Observatory image by Robert Simmon, using Suomi NPP VIIRS data provided courtesy of Chris Elvidge (NOAA National Geophysical Data Center). (NASA Earth Observatory)

Basic infrastructure improves lives and livelihoods, but hundreds of millions of people in the developing world lack access to electricity, roads, safe water and other basic services. In Africa, the average person consumes just enough energy each day to power a single light bulb for three hours.

Mobilizing public and private funding for infrastructure is a huge challenge — the International Finance Commission (IFC) estimates that it will take $2 trillion a year to modernize the world’s infrastructure.

When World Bank and International Monetary Fund (IMF) officials convene this week in Washington, D.C., for their annual meetings, the global infrastructure deficit and how to pay for it will no doubt be on the agenda. How to work with China, the new banker on the block, is also likely to come up in the discussions.

Over the past decade, China has emerged as a leading financier of global infrastructure, particularly in Africa. A new Brookings Institution report shows that China was the single largest infrastructure financier in 11 African countries between 2009 and 2012. In December 2015, China doubled down on its efforts in Africa, pledging an additional $60 billion in aid. It has also taken extraordinary steps to orchestrate the creation of two new multilateral institutions — the New Development Bank and Asian Infrastructure Investment Bank (AIIB), which together have $150 billion in capital to finance infrastructure projects in the developing world.

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China’s largess comes under scrutiny

Western donors and lenders are generally skeptical about China’s efforts to assume a leadership role in providing global infrastructure, and point to the benefits international competitive bidding rules and environmental and social safeguards provide to ensure responsible and sustainable implementation of infrastructure projects. And U.S. leaders, including President Obama and Hillary Clinton, have warned African counterparts that China may be motivated not by a desire to improve the lives of ordinary Africans but more by a desire to gain access to the continent’s natural resources.

The intended beneficiaries of Chinese-funded projects sometimes complain about quality-control issues as Beijing rushes to help countries install the “hardware” of economic development (e.g., highways, railroads, dams, bridges, ports and electricity grids). There are news reports from time to time about empty hospitals, roads that have washed away and white elephant projects.

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But many African leaders insist that China is a more reliable and efficient partner. In 2008, then-President of Senegal Abdoulaye Wade took Western donors and lenders to task for their criticism of China’s rapidly expanding overseas development program, noting that “China has helped African nations build infrastructure projects in record time — bridges, roads, schools, hospitals, dams, legislative buildings, stadiums and airports … a contract that would take five years to discuss, negotiate and sign with the World Bank takes three months when we have dealt with the Chinese authorities.”

What’s the real story? Do these projects improve economic development?

In a new AidData working paper, we put these claims to the test. We first identify the latitude and longitude coordinates of 3,097 Chinese-funded development project sites in 47 African countries over the 2000-2012 period. We then fuse these data with an innovative measure of subnational economic activity: annual nighttime light data derived from satellite imagery. Finally, using a statistical approach that makes it possible to estimate the causal impact of Chinese development projects, we find that a 10 percent increase in Chinese development finance corresponds to an 0.6-1.1 percent increase in per capita nighttime light output — and a 0.2-0.3 percent rise in regional GDP. China is quite literally lighting up Africa.

In another AidData working paper (recently published in the Oxford Review of Economic Policy), researchers Axel Dreher and Steffen Lohmann found no robust, causal evidence that World Bank development projects increase nighttime light output.

Chinese projects are disproportionately sited in the home towns of African leaders

So that’s some good news about Chinese-financed development projects. But there’s also a red flag. Governing elites in developing countries seem to be manipulating these projects for their own political gain. We find that a disproportionate share of Chinese development projects show up in politically privileged areas — specifically the birth regions of African leaders (and their spouses). These findings persist even after we control for a large number of other factors that might affect the geographic siting of Chinese-backed projects.

And the level of political targeting bias is high. Our results indicate that the average African leader’s birth region receives roughly three times as much (195 percent more) financial support from China during the leader’s time in power. By contrast, we find no evidence for this type of political targeting bias in the spatial distribution of World Bank-funded projects.

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Do Chinese-funded projects help the areas that need them most?

When taken together, our findings suggest that China may be inadvertently cementing or widening spatial inequalities within African countries. Yes, Chinese development projects improve local development outcomes in Africa, but not necessarily in the areas that need them most (since leaders’ birth regions tend to be among the richest localities within African countries).

This means Africa’s politically privileged may benefit disproportionately from Chinese development projects, with fewer benefits going to politically marginalized regions. It also raises questions about the long-run consequences of persistent or widening inequality, which a number of researchers point out may heighten the risks of social unrest, violent conflict  and political instability in Africa.

Bradley Parks is AidData’s executive director and research faculty at the College of William & Mary’s Institute for the Theory and Practice of International Relations. Roland Hodler is professor of economics and director of SIAW at the University of St. Gallen. Axel Dreher is professor of international and development politics at Heidelberg University. Paul Raschky is associate professor at the department of economics at Monash University. Michael Tierney is George and Mary Hylton Professor of Government and International Relations at the College of William & Mary.  Andreas Fuchs is a senior researcher at Heidelberg University. They are the co-authors of “Aid on Demand: African Leaders and the Geography of China’s Foreign Assistance,” a recent paper published as part of the AidData Working Paper series. The views expressed are those of the authors and should not be attributed to AidData or funders of AidData’s work.