Determinants of China's and Japan's Foreign Aid Allocations in Africa

Abstract

Foreign aid plays an important role in promoting economic development in Africa. Recently, several countries, most notably China, have emerged as alternative sources of foreign aid. However, their motives for providing foreign aid have been questioned. The present study examines and compares determinants of China's and Japan's foreign aid allocations in Africa. It assumes that the distribution of foreign aid was determined by the aid donors’ self-interest and also by the aid recipients’ needs. Three panel model methods, namely, the pooled OLS method, the one-way fixed effects method and the two-way fixed effects methods, were employed to examine and compare the patterns of China's and Japan's foreign aid allocation in Africa. The main finding was that the provision of foreign aid by China and Japan was primarily driven by the aid donors’ self-interest. Additionally, the size of population in a recipient country was an important element to determine China's and Japan's aid allocations. The findings also suggest that Japan tended to pay more attention to the aid recipient countries’ needs as well as to the quality of governance and institutions in these countries. Overall, the findings indicate that there was no considerable difference in the motives for the provision of aid between the two aid donor countries.