Does one good deserve another? Evidence from China's trade and aid policy

In this paper, we study the impact of China’s foreign aid on exports. We use a sample of 165 countries over the time span 2000-2014 and employ a gravity model with GDP-weighted multilateral resistance terms. Our findings suggest that the return on Chinese exports of every dollar spent on foreign aid is around 0.156$-0.4$, at the aggregate level. The aid provided in passed periods also promotes China’s exports. We also show, while taking account of the aid heteorogeneity, that the Chinese government could get a higher return in terms of exports when providing development aid relative to infrastructure, to the recipients. Furthermore, we find that China international aid helps the country to trade more with similar income-level economies. Hence, it can, to a certain extent, foster the South-South trade relations.