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Undermining conditionality? The effect of Chinese development assistance on compliance with World Bank project agreements

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Abstract

Does Chinese development assistance undermine recipient country compliance with DAC aid conditionality? I theorize that Chinese aid provides an outside option that weakens recipient countries’ incentives to comply with conditionality by decreasing their dependence on DAC donors and undermining the ability of DAC donors to credibly commit to the enforcement of aid agreements. I test the theoretical predictions using project-level data on government compliance with World Bank project agreements for a sample of 42 Sub-Saharan African countries from 2000-2014. The empirical analysis finds strong support for the hypothesis that Chinese development assistance decreases the likelihood of recipient country compliance with the conditions specified in World Bank project agreements. The results are robust to alternative measures of Chinese development assistance, potential sources of omitted variable bias, and an instrumental variable estimation strategy.

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Notes

  1. The DAC is an international forum of 30 Western donor agencies that was created to discuss and promote cooperation on issues surrounding development assistance practices in developing countries.

  2. This article defines Chinese development assistance using the broader definition of official finance which captures both official development assistance and other official finance. Throughout this article, the terms “development assistance” and “aid” are used interchangeably when referring to Chinese official finance.

  3. Over the 2000-2014 time period, Sub-Saharan Africa received over 30 percent of Chinese official finance and ranked the lowest in World Bank government compliance with project agreements of any region at an average of 60 percent of projects in 2014 (Dreher et al., 2021; IEG, 2017).

  4. United States commitments of official finance to Sub-Saharan Africa totaled $106 billion (2016 USD) from 2000-2014. Despite being the same relative size, China and the United States have very different development finance portfolios. The United States’ portfolio is almost entirely comprised of ODA.

  5. Swaziland is currently the only remaining African nation to recognize Taiwan.

  6. I formalize this argument in Online Appendix C using an aid-for-policy framework, which examines aid transfers from a potential donor to a recipient country in exchange for policy reform (Bermeo 2016; Bueno De Mesquita and Smith 2007, 2009).

  7. A subset of projects in the dataset receive ratings from Implementation Completion Reports and more in-depth Project Performance Assessment Reports. If projects were evaluated multiple times for government performance, I selected the most recent evaluation rating.

  8. Supplementary material for this article is available on the website of the Review of International Organizations.

  9. Girod and Tobin (2016), 221.

  10. Data on the number of conditions attached to World Bank projects is only available for the subset of Development Finance Policy projects.

  11. ODA is defined by the DAC as flows of official financing that are administered to promote the economic development and welfare of developing countries that are concessional with a grant element of at least 25 percent.

  12. Examples of OOF include loans with a development intent with a grant element lower than 25 percent, grants with a representational purpose, and export financing.

  13. The use of an alternative three-year average prior to project completion does not substantively change the findings.

  14. Debt service/GNI is also employed in robustness checks to address concerns of multicollinearity.

  15. Political corruption is defined as the frequency in which members of the government: 1) grant favors in exchange for bribes and 2) steal, embezzle, or misappropriate state resources for personal use.

  16. Average semi-elasticities were calculated using the aextlogit Stata module. Regression results that report the coefficients as the change in log odds are also provided in Appendix Table B1. Results from an alternative linear probability model (LPM) are also reported in the ??.

  17. Robustness checks include the full set of project sectors.

  18. The results are not substantively changed if the two measures are included in separate regressions.

  19. The inclusion of Chinese FDI inflows to recipient countries limits the study period to 2008-2012.

  20. Corresponding regression results are presented in Appendix Table B7.

  21. An alternative IV analysis using the primary project-level dataset is reported in the ??

  22. In contrast to most Bartik-style instruments, where cross-sectional units vary along several dimensions, the units in this approach only differ along one dimension- the probability to receive Chinese aid.

  23. The classification is based on the median probability of receiving Chinese official finance during the study period. Plots are reported in Appendix Figure B3.

  24. IV robustness tests are reported in Appendix Table B8.

    Table 2 Instrumental variable estimation results
    Full size table

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Acknowledgements

I would like to thank the editor and three anonymous referees for helpful suggestions. I am especially grateful to Layna Mosley, Lucy Martin, and Cameron Ballard-Rosa for their valuable feedback at different stages of the project. I also thank participants from the Tracking International Aid and Investment from Emerging Economies (Heidelberg 2017) and IO Conditionality (IBEI 2019) workshops. Any errors are my own.

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  1. Postdoctoral Research Associate, Anti-Corruption Evidence (ACE) Research Consortium, SOAS University of London, London, UK

    Mitchell Watkins

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Watkins, M. Undermining conditionality? The effect of Chinese development assistance on compliance with World Bank project agreements. Rev Int Organ 17, 667–690 (2022). https://doi.org/10.1007/s11558-021-09443-z

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