Abstract
This study examines the long-term effect of aid on bilateral trade and provides a new mechanism that aid fosters intergroup affinity. Our empirical setting is the Soviet aid to China during the 1950s under the 156 Program, which allowed numerous large industrial plants to be constructed. Using a difference-in-differences framework, we find that Chinese cities which received more aid through the program, trade more with Russia than with other countries in the 2000s, despite the Sino-Russian split. We then provide a rich set of evidence suggesting that the relationship between aid and trade can be explained by the affinity mechanism.
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