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Does India Use Development Finance to Compete With China? A Subnational Analysis

Gerda Asmus (), Vera Eichenauer (), Andreas Fuchs () and Bradley C. Parks ()
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Gerda Asmus: Heidelberg University - Alfred Weber Institute for Economics
Vera Eichenauer: ETH Zurich, Switzerland
Andreas Fuchs: University of Goettingen, Department of Economics and Centre for Modern East Asian Studies
Bradley C. Parks: AidData, Global Research Institute, William and Mary, Center for Global Development

No 22-500, KOF Working papers from KOF Swiss Economic Institute, ETH Zurich

Abstract: China and India increasingly provide aid and credit to developing countries. This paper explores whether India uses these financial instruments to compete for geopolitical and commercial influence with China (and vice versa). To do so, we build a new geocoded dataset of Indian government-financed projects in the Global South between 2007 and 2014 and combine it with data on Chinese government-financed projects. Our regression results for 2,333 provinces within 123 countries demonstrate that India’s Exim Bank is significantly more likely to locate a project in a given jurisdiction if China provided government financing there in the previous year. Since this effect is more pronounced in countries where India is more popular relative to China and where both lenders have a similar export structure, we interpret this as evidence of India competing with China. By contrast, we do not find evidence that China uses official aid or credit to compete with India through co-located projects.

Keywords: development finance; foreign aid; official development assistance; official credits; South-South Cooperation; China; India; geostrategic competition; geospatial analysis (search for similar items in EconPapers)
JEL-codes: F34 F35 F59 H77 H81 O19 O22 P33 R58 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2022-01
New Economics Papers: this item is included in nep-cna, nep-dev and nep-ppm
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