Aid and conflict: Evidence from Chinese aid

Abstract

Using data from AidData and the conflict report from Uppsala Conflict Data Program (UCDP) from 2000 to 2014, we find that China's other official flows (OOF) aid can significantly reduce the frequency of conflicts. To deal with the endogeneity, we use China's competitive capacity as the instrumental variable. Our results are robust when considering the possible sample selection bias and different types of international aid. We find that increasing the local infrastructure investment and employment is the main mechanism, which increases the opportunity cost of engaging in conflicts. Our results provide evidence on the effectiveness of China's aid mode and the importance of infrastructure investment in developing countries.