Poverty Reduction Effects of China’s Aid and Investment to Developing Countries*

Zhang Yuan (张原)
School of Business, Beijing Language and Culture University (BLCU), Beijing, China

Abstract: The Chinese approach to poverty reduction is a government-led and marketbased approach that gives priority to infrastructure and combines fiscal subsidy with development as an antidote to poverty. These characteristics are also evident in China’s cooperation with other developing countries on poverty reduction. China supports other developing countries to reduce poverty via aid and investment mainly in the field of infrastructure. While the government and SOEs take the lead in foreign aid and investment, China also invites other sources of capital to participate in market-based development in partnership with recipient countries. Our empirical research finds that aid and investment
from China are generally conducive to reducing poverty incidence in recipient developing countries, but their poverty reduction effects vary across different types of aid and investment. The elements characteristic of the Chinese approach to poverty reduction proved to be effective in helping other developing countries reduce poverty as well. Nevertheless, the effectiveness of aid and investment in reducing poverty is subject to the governance and market efficiency of recipient countries. In order for the Chinese experience to work in less developed countries, future cooperation on poverty reduction must put a premium on governance and market systems.

Keywords: poverty reduction effects, foreign aid, cross-border investment, cooperation on poverty reduction, threshold regression.
JEL Classification Codes: F35, F21
DOI:1 0.19602/j .chinaeconomist.2020.03.01

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