The Domestic Political Economy of China’s Foreign Aid

I study how domestic political considerations influence the foreign policy choices of autocratic regimes, by analyzing China’s foreign aid. First, using contractor-level data, I find that the regime allocates foreign aid projects to help maintain political stability: aid projects are awarded to state-owned firms in Chinese prefectures hit by social unrest, increasing employment and political stability. Second, I show that this strategy to manage domestic unrest affects the global allocation of Chinese aid, since state-owned firms pursue projects in countries where they have prior connections. Finally, I document that foreign aid triggered by domestic unrest does not affect political instability in recipient countries on average.

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