Handbook on the Economics of Foreign Aid
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Handbook on the Economics of Foreign Aid

Edited by B. Mak Arvin and Byron Lew

It would be fair to say that foreign aid today is one of the most important factors in international relations and in the national economy of many countries – as well as one of the most researched fields in economics. Although much has been written on the subject of foreign aid, this book contributes by taking stock of knowledge in the field, with chapters summarizing long-standing debates as well as the latest advances. Several contributions provide new analytical insights or empirical evidence on different aspects of aid. As a whole, the book demonstrate how researchers have dealt with increasingly complex issues over time – both theoretical and empirical – on the allocation, impact, and efficacy of aid, with aid policies placed at the center of the discussion.
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Chapter 8: China’s aid and FDI flows to Africa: strategic interest or economic motivation?

Byron Lew and B. Mak Arvin


In the past decade there has been a marked increase in South–South cooperation, investment and trade. A remarkable example of this has been the case of China. Even while still a developing economy with per capita incomes well below those of the industrialized countries of the North, this Asian giant has become an international lender. Although Chinese flows of outward foreign direct investment (FDI) and aid are small on a global scale, they have increased rapidly in the recent past. The outward capital flows are the balance of payments flip-side generated by the large trade surpluses that China runs as the new ‘workshop of the world’. The workers of China are generating capital flows from their willingness to barter goods for promises of future payment. The Chinese government and businesses use these promises to invest and provide aid abroad. China, until recently a recipient of foreign aid and large inflows of FDI, has begun asserting its presence among developing countries through increased flows of FDI and aid. This emerging pattern is most apparent for resource-rich Africa. While the recent literature analyzes Chinese FDI in some depth, left unanswered is the question of importance of Chinese aid as distinct from FDI. However, the lack of data definitively distinguishing aid has made analysis of Chinese aid a challenging problem. Fortunately, new data on such aid has become available thus allowing a closer scrutiny of aid by the People’s Republic.

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