The effect of foreign aid on carbon emissions in recipient countries: Evidence from China

Abstract

Foreign aid is an essential tool in economic diplomacy tool, yet its significance in global environment governance often goes underestimated. Taking 118 countries that received Chinese foreign aid from 2000 to 2018 as the research objects, this study investigated the impact of foreign aid on the carbon emissions of recipient countries and the mechanism. Firstly, the present study found that Chinese foreign aid increased the overall carbon emission levels of recipient countries during the sample period, with each 1 % increase in Chinese foreign aid being followed by a 0.0148 % increase in the carbon emissions of recipient countries. Secondly, the improvement of the economic growth and technological innovation of recipient countries served a mediating role in the process of Chinese aid affecting the carbon emissions of recipient countries. Thirdly, the threshold test results indicate that Chinese foreign aid helps to reduce the carbon emission levels of recipient countries when their economic growth rates and technology innovation levels are low, noting that this emission reduction effect may weaken as the recipient countries' economic growth rates and technological innovation increase. The findings of this paper expand the literature on the functional theory and non-economic consequences of foreign aid. Moreover, they told significant theoretical and policy implications for promoting cleaner aid practices and fostering low-carbon, green growth in recipient countries.