Can China’s Aid Promotes the Value Added Exports of Recipient Countries?

Abstract

ABSTRACT This paper explores whether China’s aid is able to promote the value added exports of the recipient countries based on the fact that the gross export under the traditional accounting system can no longer reflect the current real trade gains of a country. The research results indicate that China’s aid can indeed effectively promote the value added exports of the recipient countries. Moreover, this paper used the interaction term between China’s foreign exchange reserve and the frequency of U.S. historical foreign aid as the instrumental variable to deal with the endogenous problem. In addition, the heterogeneity test shows that the geographical environment and development level of recipient countries will affect the relationship between China’s aid and the value added export of recipient countries. Finally, the mechanism test shows that improving the infrastructure conditions of recipient countries is an important channel for China’s aid to promote the value added export of recipient countries. These findings of our research provide both theoretical and empirical evidence for improving the efficiency of foreign aid.