The Determinants of Chinese Foreign Aid: Case of Mozambique

Abstract

The purpose of this study is to examine what factors China’s foreign aid allocation affected based on the case of Mozambique. Dreher et al.(2018), the most pioneering research on Chinese aid argue that China’s foreign policy interests determine its allocation of Official Development Assistance(ODA) flows and that economic considerations determine less concessional forms of official financing(Other Official Flows, OOF). However, existing studies examining the factors of aid allocation in Western donor countries show a mixture of factors such as donors’ interest and recipients’ development. This study argues that through the Mozambique case, China’s aid is also allocated by the interaction of various factors. Utilizing the Granger Causality test, we find that while ODA flows affect exports from China to Mozambique, exports do not cause ODA. In terms of OOF, the argument of Dreher et al.(2018) was not supported. OOF is not distributed according to economic purpose. Investigating aid to the agriculture, social infrastructure, health, and education sectors, this study shows that aid is distributed for different purposes depending the sector.