Accepted Manuscript

The effects of China's aid and trade on its ODI in African

countries

Yan Dong, Cijun Fan

PII: S1566-0141(17)30354-0
DOI: doi: 10.1016/j.ememar.2017.09.003
Reference: EMEMAR 520
To appear in:
Received date: 3 August 2014
Revised date: 18 August 2017
Accepted date: 14 September 2017

Please cite this article as: Yan Dong, Cijun Fan , The effects of China's aid and trade on its
ODI in African countries, (2017), doi: 10.1016/j.ememar.2017.09.003

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 ACCEPTED MANUSCRIPT

The Effects of China’s Aid and Trade on Its ODI in African Countries

Yan Dong1, Cijun Fan2,3

Abstract:

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This paper examines the effects of China's aid and trade on its overseas direct
investment (ODI) in 50 African countries from 2002 to 2013. We find that exports of

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natural resources significantly increase China’s ODI; this suggests that China's ODI
is "vertical." Despite this, the relationship between aid and ODI varies according to

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different types of aid. Aid invested in social and economic infrastructure raises ODI,
and the marginal effect diminishes as aid increases. Aid invested in the productive
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sector and the government, however, negatively impacts ODI, thereby suggesting that
China's aid will crowd out its investment in these countries.
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Keywords: Aid, Overseas Direct Investment (ODI), Trade, Africa

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JEL classifications: F21; F35; O19.

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1
Corresponding Author: Yan Dong, Research Institute of Economics and Management, Southwestern
University of Finance and Economics; No. 555, Liutai Avenue; Chengdu, China, 610000; phone: (028)
87092167; email: ydong@swufe.edu.cn.
2
Cijun Fan, Research Institute of Economics and Management, Southwestern University of Finance
and Economics; No. 555, Liutai Avenue; Chengdu, China, 610000.
3
This work is supported by the National Natural Science Foundation of China, Project 71203183, and
the Fundamental Research Fund for Central Universities.
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The Effects of China’s Aid and Trade on Its ODI in African Countries

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Abstract:

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This paper examines the effects of China's aid and trade on its overseas direct

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investment (ODI) in 50 African countries from 2002 to 2013. We find that exports of
natural resources significantly increase China’s ODI; this suggests that China's ODI
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is "vertical." Despite this, the relationship between aid and ODI varies according to
different types of aid. Aid invested in social and economic infrastructure raises ODI,
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and the marginal effect diminishes as aid increases. Aid invested in the productive
sector and the government, however, negatively impacts ODI, thereby suggesting that
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China's aid will crowd out its investment in these countries.

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Keywords: Aid, Overseas Direct Investment (ODI), Trade, Africa

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JEL classifications: F21; F35; O19.

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1. Introduction

Africa is now China’s major import source, its second largest overseas construction
project contract market, and its fourth largest investment destination. As shown in
Figure 1 that bilateral trade between China and Africa has been increasing from 5.5
billion USD to 179 billion USD during 1998-20154. China’s imports from Africa had

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exceeds its exports during recent years due to the economic development and
increasing demand for natural resources in Chinese domestic market5. Meyersson et al.

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(2008) find that African exporting natural resources to China as compared to the rest
of the world has large positive effects on economic growth and investment in Africa.

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Both He (2013) and Drummond and Liu (2013) also believe that rising trading links
with China is beneficial to Africa since it allows African countries to diversify their
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export across countries.
In addition to trade cooperation, Chinese government also encourages and supports
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enterprises and financial institutions in increasing their investments in Africa. As

shown in Figure 2, by the end of 2015, China’s cumulative FDI in Africa exceeded
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$34.69 billion USD. More than 2,000 Chinese companies have invested in Africa.
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Most of the investment has flowed into energy, mining, construction, and
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manufacturing. China has now served as a development model for Africa, as well as
an alternative source of trade and finance to Africa’s traditional development partners.
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Over the past two decades, China has been the major recipient of foreign direct
investment, but studies on the outflow of China’s investment are growing. Cheng and
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Ma (2009) analyzed the destination of China’s ODI, finding that the real GDP of host
economies and the distance between host countries and China had significant impact
on the amounts of China’s ODI flows to and ODI stocks in the host countries. Cheung
and Qian (2009) examine the differences of investment behavior of China across
developed and developing countries, and suggest that China’s ODI tends to be
induced by both the market-seeking and resource-seeking motives as well as Chinese
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National Bureau of Statistics of China
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However, it is worth noting this trend has been reversed in 2015, in which China’s importing from Africa has
reduced by 40% due to the weak commodity price in the global market.
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trade with developing countries. Dong et al. (2011) find that infrastructure and natural
resources are principal factors attracting Chinese ODI in Africa. Moreover, Chinese
investors prefer to invest in countries that are geographically closer to them (shorter
distances away), and they are also less concerned with the strength of the host
countries’ institutional factors.
Furthermore, China also has a long history of providing development aid to African

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countries. Its first major project was the TAZARA Railway in 1975 which linked
Zambia to the Tanzanian port of Dar es Salaam. However, in recent years, China’s aid

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to African countries is rarely studied due to a lack of statistics. China AidData (in
partnership with the Centre for Global Development), has led an effort over the last

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four years to address this data deficit. Using an open-source data collection and
triangulation methodology, they have established a large dataset that contains more
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than 2000 Chinese official finance projects worth over $83 billion to fifty African
countries between 2000 - 2013. The distribution of China’s aid projects in Africa is
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shown in Figure 3.
Particularly for countries that have difficulties attracting FDI, development aid can
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serve as a signal to attract FDI and aid can be invested into infrastructure and attract
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more FDI. However, some researchers have found that aid may crowd out investment
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and have a negative impact on FDI. Selaya and Sunesen (2012) believe that this type
of mixed result can be explained by the high level of aggregation used for the aid
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variable.
A conventional belief is that trade, foreign aid, and foreign direct investment (FDI)
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complement each other. Biggeri and Sanfilippo (2009) argue that in addition to
resource endowment and market size, China’s activity in Africa is also driven by a
strategic interaction of trade, FDI and aid. Therefore, we examine the effects of aid
and trade on FDI together. We first divide aid data into four categories: aid for social
infrastructure; aid for economic infrastructure; aid invested in physical capital; and
aid for governmental budget support. We also consider the impact of imports and
exports, especially natural resources (such as mineral fuel and ores), on China’s ODI.
A panel of 50 African countries over the period of 2002–2013 has been constructed to
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examine the impact of China’s aid and trade on its overseas direct investment in
African countries. After controlling for factors such as aid from DAC, market size,
economic development, and energy reserves, China’s importing of natural resources
from Africa will significantly increase Chinese ODI in these countries. Moreover, the
relationship between aid and ODI is varied if we consider various categories of aid
respectively. While the marginal effect diminishes as the value of aid increases, aid

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invested in social and economic infrastructure raises ODI from China to African
countries. Aid invested in the productive sector and government, however, has a

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negative impact on ODI; this suggests that China’s aid in Africa will crowd out
investment in these countries. To the authors’ knowledge, this is the first paper to

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empirically study China’s aid invested in different sectors and their relationships with
China’s ODI in African countries.
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The remainder of the paper is organized as follows. Section 2 discusses literature
related to trade, ODI, and aid. Sections 3 and 4 discuss empirical methodology, data
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and variables, respectively. Section 5 reports the econometric results and section 6
concludes.
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2. Literature Review
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This paper combines three strands of the literature: the role of development aid on ODI,

the impact of trade on ODI, and other possible factors affect ODI.
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In the first strand, the relationship between aid and ODI is controversial. There are
various statements and findings related to this topic. The most conventional belief is
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that foreign aid and ODI are complementary to each other, suggesting that
development aid will promote an ODI flow to host countries. Kimura and Todo (2010)
propose that aid has a positive ―vanguard effect‖ on foreign investment. They believe
that foreign aid can provide guidance for future investment by offering information
about the local business environment. They found robust evidence that foreign aid
from Japan in particular has a vanguard effect. Eri (2013) also proves that aid from
Japan generally promotes Japanese FDI in these countries. Moreover, Arazmuradov
(2012) and Anyanwu (2012) both find a complementary relationship between aid and
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FDI. This relationship is due to a positive economic and social infrastructure effect by
which aid improves the investment environment for foreign investors in African
countries. Bandyopadhyay et al. (2011) empirically study 78 developing countries and
find that aid has the power to mitigate the negative effects of domestic terrorism on
FDI. Furthermore, Garriga and Phillips (2014) study post-conflict countries from
1973 – 2008. Results show that development aid generally promotes FDI. Asiedu and

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Jin (2009) prove that under certain conditions, aid mitigates the adverse effects of
expropriation risk on FDI.

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On the other hand, there are some studies which suggest that a substitutional effect
between FDI and Aid. Djankov et al. (2006) argue that an inflow of aid is always seen

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as a windfall of resources that triggers corruption. Aid leads to increased government
consumption through rent-seeking activities with little spent on investment. Svensson
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(2000), Alesina and Weder (2002), and Easterly (2003, 2007) also confirm that these
rent-seeking activities (which are induced by foreign aid) negatively impact the
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economy. Kristjánsdóttir (2006) analyzes aid and FDI in some heavily indebted poor
countries from 1970 – 2004. As the income per capita grows, there is a shift from
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complementary to substitutional effects between aid and FDI.

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There are also some researchers who believe that there is not a significant
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relationship between FDI and aid. Harms and Luts (2006) find that the marginal effect
of aid on private foreign investment is nearly zero. For countries in which private
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agents face a substantial regulatory burden, however, the effect is strictly positive.
Karakaplan et al. (2005) examine the effects of aid on foreign direct investment using
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the data of 97 less developed countries from 1960 – 2004. Their findings suggest that
increases in foreign aid cannot bring about more FDI unless the host country has built
a good investment environment.
Selaya and Sunesen (2012) believe that this type of mixed result in the literature is
attributable to the high level of aggregation used for the aid variable. They find that
aid invested in complementary inputs draws in FDI while aid for physical capital
crowds it out. Also, Bhavan et al. (2010) study the relationship between aid and FDI in
South Asian economies. This paper finds that aid in the shape of physical capital and
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aid for human capital and infrastructure both serve as complementary factors to FDI
which contribute to the inflow of FDI in this region. Also, with an unbalanced panel of
52 countries from the 1982 – 1995, Kapfer et al. (2007) find that although aid generally
has no statistically significant impact on inflows of FDI for host countries, aid for
infrastructure has a significantly positive effect.
The second strand of literature investigates the effect of trade on ODI. There are
two main reasons for firms to invest overseas. One reason is ―horizontal‖ or ―market

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seeking‖ motivation in which the motive is to reduce the cost involved in supplying

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the market. Horizontal FDI is likely to replace exports. Conversely, FDI in search of
low-cost inputs is often ―vertical‖ or ―production cost minimizing.‖

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Numerous empirical studies have shown that most of the world’s FDI is horizontal
(Li et al., 2008; Shatz and Venables, 2000; Fung et al., 2000; Billington, 1999; Dees,
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1998; Branard, 1997; Loree and Guisinger, 1995; Wheeler and Mody, 1992;
Contractor, 1991; Kravis and Lipsey, 1982; Reuber etal., 1973). Therefore, trade and
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FDI are substitutions.

However, there is also some evidence that FDI is vertical. Helpman (1984) suggests
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that the geographical separation of high-skilled labor intensive headquarter services

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and low-skilled labor-intensive production activities leads to cost savings for

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multinational firms. Thus, vertical FDI is observed in countries with an abundance of

low-skilled labor. Ekholm (1998) and Braconier et al. (2002) also suggest a
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complementary relationship between FDI and trade. Akhtaruzzaman et al. (2017),

Busse et al. (2016), Cheung et al. (2012), Kolstad and Wiig (2011) and Sanfilippo
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(2010) all find that Chinese FDI tends to flow to African countries with large natural
resource endowments, which confirm China’s resource-seeking investment motive.
The final strand of the literature examines other factors which affect ODI levels in
host countries. Market size and economic development are usually proxied by
population, GDP per capita, or GDP growth rate. The net impact of market size on
ODI is likely to be positive. Also, the characteristics of the investment environment,
such as openness, are also important factors that affect investment decisions (Li et al.,
2008; Fung et al., 2000; Billington, 1999; Dees, 1998; Brainard, 1997; Wheeler and
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Mody, 1992; Kravis and Lipsey, 1982).

3. Empirical Methodology

In this section, we divide aid data into four categories: aid for social infrastructure; aid
for economic infrastructure; aid to be invested in productive sectors; and aid for
governmental budget support. A panel comprised of 50 African countries from 2002 –

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2013 has been constructed to examine the impact of China’s aid on its overseas direct
investment in African countries.

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We adopt ODIi,t in country i at year t as our dependent variable in the empirical

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study. The empirical model can be written as follows:

ODIi ,t  ODIi ,t 1  Aid i ,t  Tradei ,t   'X i ,t  i  t  i ,t

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(Equation 1)

where our dependent variable is ODI from China to an African country i at year t.
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Aidi,t represents China’s development aid invested to country i at year t. In addition to

the total amount of aid from China to African countries, we also consider four
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categories of aid in our empirical model. Aid_1i,t represents aid for social
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infrastructure, such as education, health, and water supply projects in country i at year
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t. Aid_2i,t represents aid oriented to economic infrastructure, such as energy,

transportation and communications projects in country i at year t. Aid_3i,t represents
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China’s aid invested directly in physical capital contributions to productive sectors,

such as agriculture, manufacturing industry, trade, banking, financial services, and
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tourism projects in country i at year t. Aid_4i,t represents China’s aid to government

for budget support in country i at year t.

Tradei,t represents the total trade between China and an African country i at year t.
We also replace total trade with exports, imports, exports/imports of resources, and
exports/imports of ore and mineral fuel from African country i to China.

Based on the recent literature on ODI determinants, we also adopt GDP growth rate,
GDP per capita, reserves of natural resources, openness, and population as control
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variables in our empirical models.

It is also possible that China may deliberately distribute development aid to

countries with poorer economic performance and that have difficulties attracting FDI.
In order to control for possible endogeneity problems in our regressions, we adopt the
system GMM estimator (Arellano and Bover (1995)) as well as Blundell and Bond’s
(1998) in our regression. Moreover, we also use the quantile regression approach

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developed by Koenker and Bassett (1978) as the estimation methodology; this allows
us to qualify and quantify the impact of aid on FDI at the different quantiles in the

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distribution of the dependent variable.

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4. Data and Variables
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China’s ODI data is denominated in millions of US dollars and collected from the
Statistical Bulletin of China’s Outward Foreign Direct Investment published by the
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Ministry of Commerce (of the People’s Republic of China). The aid data is collected
from China AidData (in partnership with the Centre for Global Development). This
database contains 2647 projects to 51 recipient countries from 2000– 2013. The
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OECD’s formal term for aid is ―official development assistance‖ (ODA), defined as
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financial flows with developmental intent and a grant element of at least 25%. Most
other financing from foreign governments that does not meet these criteria is
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classified as ―other official flows‖ (OOF)6. Since we only considered ODA in our
research, we have dropped OOF-like and vague projects in our empirically analysis.
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Therefore, we have included 913 ODA-like projects in 50 African countries from

2002 to 2013 in our empirical study.
Furthermore, we divide these projects into four categories: aid for social
infrastructure; aid for economic infrastructure; aid invested in productive sectors; and
aid for governmental budget support. Figure 4 presents the structure of China’s aid to
Africa. It is clearly shown that majority of China’s aid had flow to economic
infrastructure projects, such as energy, transportation and communications projects.

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Strange et. al., (2013)
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Additionally, it is possible that development aid from other countries to Africa may
encourage China’s ODI. Therefore, we consider the official aid from the members of
the Development Assistance Committee (DAC) in our regressions.
Based on the recent literature on ODI determinants, this paper uses economic and
development indicators, including GDP growth rate, GDP per capita, reserves of
natural resources, openness, and population as control variables. Table 1 presents the

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definitions of variables and their descriptions. The summary statistics and correlation
matrix for our main variables are included in Table 2 and Table A1 respectively.

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5. Empirical Results

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5.1 Main Results:

Structure of Aid We begin by examining the effect of total aid, as well as different
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type of aid on ODI. Table 3 reports the results of estimating Equation (1) by using the
system GMM estimator. Aggregated aid data and four categories of aid are used as
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the independent variable in these regressions. Column (1) shows that aggregated aid
does not have a significant impact on China’s ODI flowing to African countries. This
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result seems to support Harms and Luts (2006) and Karakaplan et al. (2005) who both
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conclude that an increase in foreign aid cannot bring about more FDI. Additionally,
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China’s ODI tends to flow to poorer countries with rich natural resources and higher
economic growth. Also, aid provided by other countries (DAC) have a positive impact
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on China’s ODI.
Columns (2) to (5) report the regression results with various categories of aid. As
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we mentioned in the earlier section, Aid_1 represents aid for social infrastructure,
such as education and health projects. Aid_2 represents aid for economic
infrastructure, such as energy, transportation, and communications projects. It is
shown that although total aid has no impact on ODI, Aid_1 and Aid_2 are positively
associated with China’s ODI in these countries at a significant level, suggesting that
aid invested in infrastructure is complementary to ODI. Therefore, we can conclude
that Aid_1 and Aid_2 can promote China’s ODI.
In the meantime, Aid_3 represents aid invested directly in physical capital
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contributions to the productive sectors. Aid_3 has a significantly negative relationship

with ODI received by these countries; this suggests that aid invested in productive
sectors crowds out direct investment from China. There are several possible
explanations. First, most ODI from China flows to productive sectors in Africa. If
these sectors can receive aid from the Chinese government, it gives them less
incentive to attract investment from private investors. Second, it is possible that most

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aid projects are deliberately selected to support sectors that are under-developed or
unprofitable which are having difficulties to attract private investments).

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Aid_4 represents China’s aid to the government for budget support, which is also
negatively related to ODI at a very significant level. This finding suggests that aid to

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the government has a substitution effect on ODI from China. Djankov et al. (2006),
Svensson (2000), Alesina and Weder (2002), and Easterly (2003, 2007) all confirm
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that aid to the government could trigger corruption, hence has a negative impact on
the economy.
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Therefore, China’s aid to African countries has a significant impact on ODI only if
it flows to social and economic infrastructure projects, while aid to production sector
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and government cannot attract foreign investors and serve as a long-term instrument
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to promote the economic development of African countries.

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At the same time, total trade has a positive impact on ODI in general. However, it is
interesting to find that total trade and ODA become insignificant if Aid_4 is included
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in the regression. We will analyze how the composition of trade affects ODI in the
following section.
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Other factors, such as GDP growth, ODA, openness and natural resources can also
attract ODI from Chinese investors.

Composition of Trade Next, by studying the composition of trade between China and
Africa, we replace total trade with exports, imports, exports/imports of resources,
exports of ore and mineral fuel from African country to China to further analyze the
effect of trade and aid on ODI. Tables 4 reports the regression results when total aid is
considered. Similar to what we find in Table 3, aggregated aid does not have a
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significant impact on China’s ODI to African countries. At the same time, results in
Table 4 suggest that Africa’s imports from China have no impact on China’s ODI in
these countries. Exports on the other hand (especially exports of natural resources to
China) are positively correlated to China’s ODI at a significant level.
Table 5 to 8 report results when we consider Aid_1, Aid_2, Aid_3 and Aid_4
respectively. Again, all results indicate that total exports to China, export of mineral
fuel and oil, export of ores to China are significantly related to China’s ODI in Africa.

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At the same time, imports from China have no impact on China’s ODI in African

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countries. Therefore, we can conclude that China’s ODI in African countries are
―vertical‖ rather than ―horizontal.‖ China’s ODI in Africa is in search of low-cost

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inputs.
It is also worth noting that no matter which component of trade is considered in
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these regressions, all results show that Aid_1 and Aid_2 are positively associated with
China’s ODI while Aid_3 and Aid_4 are negatively related to ODI at a significant
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level. It is consistent with our results in Table 3.

In additions, China’s ODI tends to flow to poorer countries (low GDP per capita)
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with higher openness index.

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5.2 Extended Analysis: Quantile Regressions

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After examining the above linear outcomes, we analyze the effects of trade and aid on
ODI more comprehensively with quantile regressions. Relative to the linear
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regression, quantile regression estimates are more robust against heteroscedasticity

and possible outliers in the response measurements. Figure 5 and 6 provide the
corresponding results of quantile regressions.7
Results indicate that aid potentially has a non-linear relationship with ODI.
First, aid invested in social infrastructure becomes positively related to ODI when
ODI increases. This suggests the complementary effect between aid and ODI becomes

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Tables A2 to A7 report the results of quantile regressions with different category of aid, respectively,
which are included in Appendix II.
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stronger when the level of ODI increases. Second, aid invested in economic
infrastructure provides a stronger impetus to attract Chinese investment for African
countries, especially for the countries in the 0.5th quantile. The marginal effect,
however, diminishes as aid increases. Third, it is also found that aid invested in the
productive sectors has a negative effect on ODI; this suggests that aid invested in the
productive sectors crowds out direct investment from China for African countries
especially when ODI is at a low level. Finally, China’s aid to governments for budget

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support is negatively related to ODI for African countries, and the influence is strong

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in the 0.25th quantile. This finding confirms our previous argument that aid to
governments may trigger corruption and negatively impact the economy, especially in

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poor countries.
At the same time, all results indicate that trade, particularly exports plays a strongly
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positive role in ODI. The impact exports on ODI are mostly significant from 0.1th
quantile to 0.75th quantiles. However, these coefficients become smaller when the
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percentile of quantile increases, which suggests a diminishing effect of trade on ODI.

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6. Conclusion
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In this paper, we examine the role of development aid and trade on China’s ODI in
Africa. By using a dataset contains ODA-like projects in 50 African countries from
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2002 to 2013, we are able to study the structure of aid and divide the aid data into four
categories: aid for social infrastructure; aid for economic infrastructure; aid invested
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in the productive sectors; and aid for governmental budget support. We then consider
the composition of trade by replacing total trade with total imports and exports,
imports and exports of natural resources (such as mineral fuel and ore). A panel of 50
African countries over the period 2002 – 2013 has been constructed and the system
GMM estimator, as well as quantile regressions, are adopted in our regressions. The
study produces several significant empirical results.
First, after controlling for factors such as aid from DAC, market size, economic
development, and energy reserves, the relationship between aid and ODI varies
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according to different categories of aid. Aid invested in social and economic

infrastructure significantly raises ODI from China to African countries, suggesting
that aid invested in infrastructure is complementary to the ODI. However, the
marginal effect diminishes when aid increases. This suggests that China’s aid cannot
serve as a long-term instrument to promote economic development in African
countries. Aid invested in the productive sectors and the government negatively

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impacts ODI; this suggests that aid to those sectors will crowd out investment. If
productive sectors can receive aid from the Chinese government, they may have less

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incentive to actively attracting investment from private investors. Also, aid to the
government could trigger corruption and negatively impact the economy. Therefore,

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although foreign aid is an important element of promoting economic growth and
attracting foreign investment, we need to pay attention to the negative impacts that
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some aid projects may bring.
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Finally, although the total trade has a significant impact on ODI, after examining
the composition of trade, we find that exports, especially the exporting of natural
resources to China are the real determinants for China’s ODI in Africa. This suggests
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that the ODI from China mainly seeks low-cost inputs and minimized production cost.
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Therefore, we can conclude that China’s ODI in African countries is ―vertical‖ rather
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than ―horizontal.‖
Chinese investors have gradually emerged as important and influential players in
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Africa’s economy. As China becomes more involved in Africa, aid is becoming a

large and important component of Chinese soft power. With that, it is important to
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understand whether China’s aid will promote or undermine the regular business
activities of Chinese investors in Africa. At the same time, natural resources remain
an important factor in attracting Chinese investors. It may be time to upgrade the
economic cooperation structure between China and Africa by introducing both parties
to new economic activities. This study may also shed some light on the argument of
whether aid invested in African countries nowadays should have more economic
incentives in addition to political incentives.
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China-Africa Bilateral Trade (in Million USD)

250000

200000

150000

100000

50000

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China Importing from Africa (Million USD)

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China Exporting to Africa (Million USD)
Total Trade (Million USD)

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Source: National Bureau of Statistics of China

Figure 1 China-Africa bilateral trade

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Notes: This figure plots the total trade, imports and exports between China and Africa for each
year from 1998 to 2015.
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China's Overseas Direct Investment in Africa (Million USD)

40000
35000
30000
25000
20000
15000

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10000
5000
0

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2007 2008 2009 2010 2011 2012 2013 2014 2015

Flow Stock

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Source: National Bureau of Statistics of China

Figure 2 China’s overseas investment in Africa (2007-2015)

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Notes: This figure plots the China’s ODI in Africa for each year from 2007 to 2015.
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RI
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Source: China AidData

Figure 3. Distribution of China's Aid in African countries (Million USD)

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Notes: This figure describe the distribution of China’s aid in African countries. 913 development
aid projects in 50 African countries from 2002 to 2013 are included here .
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15
10

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5

RI
SC
0

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Aid_1 Aid_2 Aid_3 Aid_4

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Source: China AidData
Figure 4. Structure of China’s official development assistance (ODA) in Africa.
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Notes: This figure plots the structure of aid from China to African countries from 2002 to 2013.
913 development aid projects in 50 African countries are included here. Aid_1 represents aid for
social infrastructure; Aid_2 represents aid for economic infrastructure; Aid_3 represents aid
invested in productive sectors; and Aid_4 represents aid for governmental budget support.
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0.40
0.20

0.20
0.10
Aid_all

Aid_1

0.00
0.00

-0.20
-0.10

-0.40
-0.20

0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1

0.40

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0.30

0.20
0.20

Aid_3

RI
Aid_2

0.10

0.00
0.00

-0.20

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-0.20 -0.10

-0.40

0 .2 .4 .6 .8 1
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0 .2 .4 .6 .8 1
0.40
0.20

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0.00
Aid_4

-0.20
-0.40

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-0.60

0 .2 .4 .6 .8 1
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Figure 5. The quantile regression of aid on ODI

Notes: This figure plots corresponding results of quantile regressions in Tables A2 to A6 in
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Appendix II. Aid_all represents total aid. Aid_1 represents aid for social infrastructure; Aid_2
represents aid for economic infrastructure; Aid_3 represents aid invested in productive sectors;
and Aid_4 represents aid for governmental budget support.
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1.20
0.40

0.90
Export
Import

0.20

0.60
0.00

0.30
0.00
-0.20

0 .2 .4 .6 .8 1 0 .2 .4 .6 .8 1

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0.00 0.30 0.60 0.90 1.20

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Trade

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0 .2 .4 .6 .8 1
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Figure 6 The quantile regression of trade on ODI

Notes: This figure plots corresponding results of quantile regressions in Table A2 and Table A7 in
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Appendix 2.
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Table 1. List of variables

Dependent Variables Description Source
ODI=ln(ODI) Chinese ODI in African countries Statistical Bulletin of China’s
in USD Outward Foreign Direct
Investment
Independent variables
Aid_all=ln(Aid+1) China’s development aid China AidData, Centre for Global
invested to African countries Development
Aid_1=ln(Aid1+1) aid oriented to social China AidData, Centre for Global

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infrastructure (such as education, Development
health, and water supply
projects)

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Aid_2=ln(Aid2+1) Aid oriented to economic China AidData, Centre for Global
infrastructure (such as energy, Development

SC
transportation and
communications projects).
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Aid_3=ln(Aid3+1) Aid invested in physical capital China AidData, Centre for Global
contributions to productive Development
sectors directly (such as
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agriculture, manufacturing
industry, trade, banking, financial
service and tourism projects).
Aid_4=ln(Aid4+1) Aid to government: government, China AidData, Centre for Global
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debt, budget support Development

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Trade Imports and Exports between National Bureau of Statistics of

African countries and China China
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Export Ln(Exports to China) National Bureau of Statistics of

China
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Import Ln(Imports from China) National Bureau of Statistics of

China
Import_res Ln(imports of Mineral fuels, UN Comtrade Dataset
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mineral oils and products of their

distillation; Ores, slag and ash
from China)
Export_res Ln(exports of Mineral fuels, UN Comtrade Dataset
mineral oils and products of their
distillation; Ores, slag and ash to
China)
Export_petro Ln(Exports of Mineral fuels, UN Comtrade Dataset
mineral oils and products of their
distillation to China)
Export_ore Ln(exports of Ores, slag and ash to UN Comtrade Dataset
China)
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Table 2. Summary statistics

Variables N mean sd min p50 max
ODI 517 33.15 189.99 0.00 3.47 4018.18
Aid_all 517 170.01 595.30 0.00 8.51 8550.06
Aid_1 517 10.89 68.47 0.00 0.00 914.16
Aid_2 517 90.58 349.70 0.00 0.00 4752.58
Aid_3 517 13.34 98.41 0.00 0.00 1533.09
Aid_4 517 5.73 27.69 0.00 0.00 390.70
Trade 517 1754.48 4581.71 0.68 406.96 49532.24
Export 517 943.52 3503.07 0.00 71.19 25669.60

PT
Import 517 810.96 1557.91 0.68 233.43 12782.53
Export_res 517 482.14 2768.14 0.00 0.00 33708.77

RI
Export_petro 517 390.25 2675.43 0.00 0.00 33708.77
Export_ore 517 91.89 669.53 0.00 0.00 8417.84

SC
Import_res 517 3.86 17.06 0.00 0.13 180.85
GDP_pcap 517 1.36 1.98 0.08 0.41 14.11
GDP_growth 517 4.79 5.31 -36.70 4.84 38.00
NU
Natural_reserve 517 14.91 18.27 0.00 7.09 80.00
Openness 517 81.17 36.81 22.00 74.00 245.00
Population 517 20.18 27.41 0.08 11.14 171.83
MA

ODA 517 487.99 683.11 0.00 285.87 9790.44

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Table 3. The effects of aid and trade on ODI

Dep. Variable ODI
(1) (2) (3) (4) (5)
L.ODI 0.224*** 0.262*** 0.273*** 0.280*** 0.240***
(0.011) (0.007) (0.005) (0.006) (0.014)
Aid_all 0.004
(0.015)
Aid_1 0.035**
(0.014)
Aid_2 0.203***

PT
(0.067)
Aid_3 -0.390***

RI
(0.048)
Aid_4 -0.542***

SC
(0.139)
Trade 0.032 1.194*** 1.201*** 0.526*** 0.312
(0.724) (0.042) (0.144) (0.096) (0.585)
NU
GDP_pcap -3.055*** -1.680*** -1.718*** -0.881*** -1.897
(0.988) (0.046) (0.189) (0.106) (1.225)
GDP_growth 0.143* 0.017*** 0.047*** 0.042** 0.065
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(0.076) (0.005) (0.016) (0.016) (0.044)

Natural_reserve 0.854* 0.234*** 0.257 0.188*** 1.082**
(0.478) (0.025) (0.159) (0.052) (0.433)
Openness 3.476 0.312** 1.120*** 0.065 7.221**
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(2.815) (0.126) (0.211) (0.223) (2.716)

Population -2.715 -1.794*** -1.686*** -0.957*** -0.221
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(1.696) (0.075) (0.136) (0.157) (1.640)

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ODA 1.889* 0.885*** 0.517*** 0.918*** 0.884

(1.118) (0.110) (0.180) (0.088) (0.665)
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Year dummy Yes Yes Yes Yes Yes

Country dummy Yes Yes Yes Yes Yes
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Sargan P值 0.653 0.709 0.689 0.603 0.621

AR(1) test 0.016 0.013 0.013 0.072 0.014
AR(2) test 0.582 0.659 0.632 0.627 0.677
N 470 470 470 470 470
Notes: Empirical models of Log China ODI estimated by system GMM based on Equation (1).
There are five model specifications (1,2,3,4,5) with different type of Chinese aid data. See Table 1
for definitions of aid_all, aid_1, aid_2, aid_3, aid_4.
Standard errors are reported in parentheses. Standard errors are corrected for clustering of the
error term at the industry level. ***, ** and * indicate significance at the 10, 5 and 1 percent
levels, respectively.
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Table 4. Composition of trade with total Aid

Dep. Variable ODI
(1) (2) (3) (4) (5) (6)
L.ODI 0.214*** 0.223*** 0.261*** 0.215*** 0.256*** 0.224***
(0.014) (0.011) (0.018) (0.021) (0.025) (0.030)
Export 0.318**
(0.152)
Import 0.109
(0.311)
Export_res 0.533**

PT
(0.264)
Import_res 0.089

RI
(0.064)
Export_petro 0.596***

SC
(0.140)
Export_ore 0.425***
(0.092)
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Aid_all 0.024 0.027 0.034** 0.019 0.063 0.020
(0.017) (0.019) (0.017) (0.020) (0.131) (0.018)
GDP_pcap -3.578** -1.986** -2.168 -2.746** -1.596*** -1.168
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(1.686) (1.005) (2.264) (1.348) (0.394) (1.570)

GDP_growth 0.025 0.055 0.161** 0.166** 0.087** 0.052
(0.070) (0.093) (0.072) (0.081) (0.037) (0.039)
Natural_reserve 1.125* 1.182** 2.173** 0.634 0.193 0.327
D

(0.668) (0.476) (1.014) (0.589) (0.241) (0.549)

Openness 4.343 1.210 3.870 3.929 0.126 0.092
E

(4.569) (3.491) (3.022) (3.409) (1.894) (2.202)

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Population -9.933** -4.500*** -3.992** -1.442 -0.245 -0.740

(3.964) (1.617) (1.642) (2.356) (0.636) (0.965)
ODA 0.837 1.473 3.065** 3.226** 0.473 0.975*
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(1.880) (1.194) (1.460) (1.556) (0.441) (0.543)

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Year dummy Yes Yes Yes Yes Yes Yes

Country dummy Yes Yes Yes Yes Yes Yes
Sargan P值 0.601 0.579 0.621 0.598 0.632 0.609
AR(1) test 0.011 0.013 0.011 0.017 0.037 0.046
AR(2) test 0.563 0.559 0.595 0.455 0.464 0.450
N 470 470 470 470 470 470
Notes: There are six model specifications (1,2,3,4,5,6) with different components of Trade,
including total trade, exports, imports, exports/imports of resources, exports of ore and mineral
fuel from African countries to China. See Table 1 for definitions. Tables 4 reports the regression
results when total aid is considered. Standard errors are reported in parentheses. Standard errors
are corrected for clustering of the error term at the industry level. ***, ** and * indicate
significance at the 10, 5 and 1 percent levels, respectively.
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Table 5. Composition of trade with Aid_1

Dep. Variable ODI
(1) (2) (3) (4) (5) (6)
L.ODI 0.229*** 0.222*** 0.248*** 0.223*** 0.274*** 0.247***
(0.010) (0.015) (0.022) (0.012) (0.024) (0.036)
Export 0.237***
(0.080)
Import 0.112
(0.476)
Export_res 0.560***

PT
(0.157)
Import_res 0.099

RI
(0.074)
Export_petro 0.776***

SC
(0.146)
Export_ore 0.450***
(0.117)
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Aid_1 0.040** 0.035** 0.042*** 0.009 0.057*** 0.052**
(0.019) (0.014) (0.013) (0.014) (0.021) (0.026)
GDP_pcap -3.132*** -2.269* -0.621 -1.427 -0.773* -0.545
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(1.049) (1.208) (0.737) (1.485) (0.415) (0.479)

GDP_growth 0.099 0.146** 0.153** 0.196* 0.096*** 0.083**
(0.081) (0.062) (0.075) (0.107) (0.032) (0.035)
Natural_reserve 0.163 0.348 0.115 0.892* 0.533 0.296
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(0.252) (0.602) (0.528) (0.518) (0.331) (0.509)

Openness 1.825 7.001** 2.714 2.950 0.260 0.627
E

(1.338) (3.272) (2.236) (2.783) (1.178) (1.839)

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Population -4.443*** -0.392 -1.136 -1.417 -0.631 -0.496

(1.371) (1.731) (1.361) (1.862) (0.646) (0.677)
ODA 1.852*** 1.402 1.555 0.955 0.206 0.074
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(0.578) (1.127) (1.158) (1.175) (0.524) (0.493)

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Year dummy Yes Yes Yes Yes Yes Yes

Country dummy Yes Yes Yes Yes Yes Yes
Sargan P值 0.687 0.653 0.704 0.669 0.708 0.683
AR(1) test 0.017 0.017 0.017 0.019 0.031 0.036
AR(2) test 0.636 0.623 0.597 0.455 0.448 0.531
N 470 470 470 470 470 470
Notes: There are six model specifications (1,2,3,4,5,6) with different components of Trade,
including total trade, exports, imports, exports/imports of resources, exports of ore and mineral
fuel from African country to China. See Table 1 for definitions. Tables 5 reports the regression
results when aid_1 is considered. Standard errors are reported in parentheses. Standard errors are
corrected for clustering of the error term at the industry level. ***, ** and * indicate significance
at the 10, 5 and 1 percent levels, respectively.
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Table 6. Composition of trade with Aid_2

Dep. Variable ODI
(1) (2) (3) (4) (5) (6)
L.ODI 0.225*** 0.232*** 0.234*** 0.239*** 0.252*** 0.298***
(0.010) (0.010) (0.027) (0.016) (0.034) (0.024)
Export 0.246**
(0.095)
Import 0.097
(0.404)
Export_res 0.514**

PT
(0.249)
Import_res 0.090

RI
(0.064)
Export_petro 0.712***

SC
(0.230)
Export_ore 0.423***
(0.121)
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Aid_2 0.202*** 0.171*** 0.180*** 0.190*** 0.204*** 0.202***
(0.067) (0.062) (0.069) (0.061) (0.069) (0.065)
GDP_pcap -2.730 -1.635 -3.494 -3.115** -1.280 -0.534
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(1.865) (1.108) (2.308) (1.316) (0.765) (0.436)

GDP_growth 0.163*** 0.165** 0.234** 0.209 0.050 0.086*
(0.056) (0.080) (0.088) (0.134) (0.062) (0.046)
Natural_reserve 0.329 0.069 1.477* 0.097 0.066 1.009
D

(0.358) (0.447) (0.779) (0.702) (0.515) (0.653)

Openness 0.934 6.280** 5.444* 0.143 0.075 2.748
E

(3.220) (2.985) (2.937) (6.342) (1.836) (1.804)

PT

Population -4.008** -1.237 -1.628 -0.485 -1.710 -1.657

(1.602) (1.316) (2.358) (2.255) (1.613) (1.261)
ODA 1.455* 0.242 1.087 0.998 0.400 0.236
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(0.821) (1.147) (1.486) (1.220) (0.461) (0.429)

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Year dummy Yes Yes Yes Yes Yes Yes

Country dummy Yes Yes Yes Yes Yes Yes
Sargan P值 0.677 0.646 0.698 0.657 0.700 0.681
AR(1) test 0.016 0.014 0.027 0.015 0.043 0.046
AR(2) test 0.642 0.591 0.661 0.637 0.648 0.636
N 470 470 470 470 470 470
Notes: There are six model specifications (1,2,3,4,5,6) with different components of Trade,
including total trade, exports, imports, exports/imports of resources, exports of ore and mineral
fuel from African country to China. See Table 1 for definitions. Tables 6 reports the regression
results when aid_2 is considered. Standard errors are reported in parentheses. Standard errors are
corrected for clustering of the error term at the industry level. ***, ** and * indicate significance
at the 10, 5 and 1 percent levels, respectively.
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Table 7. Composition of trade with Aid_3

Dep. Variable ODI
(1) (2) (3) (4) (5) (6)
L.ODI 0.241*** 0.238*** 0.250*** 0.234*** 0.239*** 0.216***
(0.011) (0.008) (0.026) (0.013) (0.026) (0.023)
Export 0.303***
(0.068)
Import 0.032
(0.412)
Export_res 0.603***

PT
(0.211)
Import_res 0.081

RI
(0.056)
Export_petro 0.741***

SC
(0.199)
Export_ore 0.546***
(0.103)
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Aid_3 -0.407*** -0.390*** -0.302*** -0.424*** -0.353*** -0.407***
(0.053) (0.049) (0.049) (0.050) (0.047) (0.046)
GDP_pcap -3.428** -1.787** -2.852 -2.369** -1.843*** -0.877
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(1.671) (0.819) (1.867) (0.888) (0.461) (1.020)

GDP_growth 0.020 0.137** 0.055 0.099 0.079* 0.029
(0.083) (0.065) (0.087) (0.106) (0.043) (0.058)
Natural_reserve 0.033 0.032 0.468 0.282 0.185 0.236
D

(0.274) (0.402) (0.721) (0.505) (0.454) (0.356)

Openness 2.392** 6.028* 3.990 6.556*** 1.661 0.901
E

(1.126) (3.279) (5.477) (2.067) (1.847) (2.054)

PT

Population -4.315 -0.094 -2.069 -0.124 -1.826** -1.066

(2.626) (1.269) (3.368) (1.325) (0.902) (0.869)
ODA 1.727** 0.073 3.218 0.691 0.971* 0.326
CE

(0.646) (0.708) (2.160) (1.124) (0.574) (0.506)

AC

Year dummy Yes Yes Yes Yes Yes Yes

Country dummy Yes Yes Yes Yes Yes Yes
Sargan P值 0.545 0.513 0.578 0.557 0.592 0.588
AR(1) test 0.012 0.018 0.013 0.016 0.037 0.044
AR(2) test 0.669 0.594 0.611 0.603 0.583 0.656
N 470 470 470 470 470 470
Notes: There are six model specifications (1,2,3,4,5,6) with different components of Trade,
including total trade, exports, imports, exports/imports of resources, exports of ore and mineral
fuel from African country to China. See Table 1 for definitions. Tables 7 reports the regression
results when aid_3 is considered. Standard errors are reported in parentheses. Standard errors are
corrected for clustering of the error term at the industry level. ***, ** and * indicate significance
at the 10, 5 and 1 percent levels, respectively.
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Table 8. Composition of trade with Aid_4

Dep. Variable ODI
(1) (2) (3) (4) (5) (6)
L.ODI 0.242*** 0.230*** 0.234*** 0.229*** 0.214*** 0.267***
(0.012) (0.011) (0.019) (0.016) (0.013) (0.031)
Export 0.331***
(0.063)
Import 0.128
(0.440)
Export_res 0.438***

PT
(0.151)
Import_res 0.043

RI
(0.040)
Export_petro 0.481***

SC
(0.094)
Export_ore 0.382***
(0.139)
NU
Aid_4 -0.537*** -0.554*** -0.489** -0.513** -0.548*** -0.537**
(0.122) (0.164) (0.210) (0.223) (0.154) (0.272)
GDP_pcap -4.602*** -3.075* -0.879 -2.883** -0.652* -0.278
MA

(1.559) (1.565) (0.938) (1.267) 0.356) (0.440)

GDP_growth 0.191*** 0.169** 0.162 0.180** 0.148*** 0.130***
(0.066) (0.065) (0.104) (0.084) (0.042) (0.041)
Natural_reserve 0.409 0.623 0.348 0.612 0.394 0.524
D

(0.502) (0.461) (0.409) (0.415) (0.348) (0.361)

Openness 4.410** 4.583** 6.303** 8.929*** 1.939 0.371
E

(1.692) (2.034) (2.629) (2.725) (1.415) (1.845)

PT

Population -4.207** -1.758 -1.569 -1.176 -0.161 -0.878

(1.624) (2.314) (2.072) (1.841) (0.719) (1.004)
ODA 2.030** 0.797 0.864 0.451 0.370 0.444
CE

(0.896) (1.078) (1.134) (1.035) (0.683) (0.517)

AC

Year dummy Yes Yes Yes Yes Yes Yes

Country dummy Yes Yes Yes Yes Yes Yes
Sargan P值 0.597 0.572 0.609 0.586 0.622 0.601
AR(1) test 0.010 0.012 0.013 0.013 0.056 0.054
AR(2) test 0.603 0.598 0.652 0.691 0.634 0.641
N 470 470 470 470 470 470
Notes: There are six model specifications (1,2,3,4,5,6) with different components of Trade,
including total trade, exports, imports, exports/imports of resources, exports of ore and mineral
fuel from African country to China. See Table 1 for definitions. Tables 8 reports the regression
results when aid_4 is considered. Standard errors are reported in parentheses. Standard errors are
corrected for clustering of the error term at the industry level. ***, ** and * indicate significance
at the 10, 5 and 1 percent levels, respectively.
 ACCEPTED MANUSCRIPT

Appendix I.

Table A1. Correlation matrix

T
ODI Aid_all Aid_1 Aid_2 Aid_3 Aid_4 Trade Export Import Ex_res Petro Ore Im_res GDP_p GDP_g Na_res Open Pop ODA

P
ODI 1.000

Aid_all

Aid_1
0.174a

0.079
1.000

0.323a 1.000
R I
Aid_2

Aid_3
0.173a

-0.028
0.736a

0.309a
0.140a

0.072
1.000

0.085c 1.000
S C
Aid_4 -0.011 0.229a 0.070 0.050 0.049 1.000

N U
A
Trade 0.584a 0.280a 0.057 0.243a 0.110b 0.033 1.000

Export 0.545a 0.253a 0.061 0.221a 0.114a 0.026 0.922a 1.000

Import 0.465a 0.281a 0.061 0.242a 0.107b 0.044 0.839a 0.649a 1.000
M
Ex_res

Petro
0.312a

0.121a
0.107b

-0.004
0.005

0.003
0.075c

-0.039
0.082c

0.011
-0.013

-0.015
0.456a

0.299a
E D
0.379a

0.236a
0.480a

0.304a
1.000

0.590a 1.000

PT
Ore 0.195a 0.074c -0.015 0.047 0.072 -0.022 0.273a 0.243a 0.279a 0.641a 0.025 1.000

E
Im_res 0.414a 0.163a 0.014 0.164a 0.081c 0.002 0.534a 0.520a 0.470a 0.249a 0.193a 0.180a 1.000

C
GDP_p 0.061 -0.103b 0.005 -0.098b -0.037 -0.065 0.266a 0.216a 0.238a 0.234a 0.199a 0.126a -0.023 1.000

C
GDP_g 0.103b 0.083c 0.011 0.081c -0.024 0.063 0.132a 0.103b 0.087b -0.015 -0.063 0.023 -0.016 -0.026 1.000

A
Na_res 0.248a 0.145a 0.002 0.138a 0.044 0.089b 0.451a 0.262a 0.595a 0.318a 0.285a 0.081c 0.308a -0.089b 0.104a 1.000

Open 0.104a -0.004 0.047 -0.047 -0.026 -0.037 0.086c 0.017 0.014 0.052 0.039 0.020 -0.115a 0.474a 0.062 -0.025 1.000

Pop -0.377a 0.291a 0.061 0.280a 0.139a 0.056 0.545a 0.591a 0.508a 0.222a 0.111b 0.143a 0.493a -0.393a 0.091b 0.391a -0.500a 1.000

ODA 0.304a 0.319a 0.104b 0.286a 0.129a 0.078c 0.379a 0.447a 0.328a 0.064 -0.101b 0.165a 0.276a -0.442a 0.153a 0.205a -0.376a 0.799a 1.000

Note: a: *** (1%) b: ** (5%) c:* (10%)

32
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Appendix II.

Table A2. The quantile regression of total aid and Imports/Exports on ODI
Dep. Variable ODI
Q10 Q25 Q50 Q75 Q90
Aid_all 0.007 -0.010 0.072 0.008 -0.060
(0.085) (0.066) (0.054) (0.034) (0.051)
Export 0.878*** 0.515*** 0.460*** 0.341*** 0.387*
(0.178) (0.120) (0.095) (0.083) (0.208)
Import 0.103 0.254*** 0.241*** 0.172** 0.081

PT
(0.151) (0.081) (0.068) (0.079) (0.095)
GDP_pcap 0.259 -0.088 0.084 0.240* 0.167

RI
(0.286) (0.133) (0.013) (0.127) (0.243)
GDP_growth 0.002 0.019 0.001 0.017 0.031

SC
(0.039) (0.027) (0.015) (0.019) (0.033)
Natural_reserve 0.359** 0.203 0.054 0.069 0.021
(0.196) (0.132) (0.015) (0.111) (0.094)
NU
Openness 0.437 0.581 0.330 0.034 0.740
(0.580) (0.504) (0.419) (0.319) (0.491)
Population -0.450 -0.203 -0.014 -0.258* -0.171
MA

(0.345) (0.254) (0.158) (0.148) (0.326)

ODA 0.400 0.122 0.062 0.114 0.278
(0.354) (0.220) (0.133) (0.110) (0.208)
D

Year dummy Yes Yes Yes Yes Yes

Pseudo R2 0.191 0.209 0.213 0.235 0.183
E

N 517 517 517 517 517

PT

Notes: Tables A2 reports the regression results when aid_all and Imports/Exports are considered.
Standard errors are reported in parentheses. Standard errors are corrected for clustering of the
error term at the industry level. ***, ** and * indicate significance at the 10, 5 and 1 percent
CE

levels, respectively.
AC

33
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Table A3. The quantile regression of Aid_1 and imports/exports on ODI

Dep. Variable ODI
Q10 Q25 Q50 Q75 Q90
Aid_1 -0.064 -0.061 0.120 0.091* 0.094
(0.088) (0.110) (0.084) (0.055) (0.094)
Export 0.861*** 0.525*** 0.498*** 0.353*** 0.346
(0.192) (0.152) (0.084) (0.084) (0.247)
Import 0.109 0.213** 0.220*** 0.161** 0.158
(0.170) (0.091) (0.084) (0.071) (0.102)
GDP_pcap 0.249 -0.025 0.109 0.257** 0.105

PT
(0.307) (0.143) (0.143) (0.128) (0.270)
GDP_growth 0.003 0.015 0.000 0.009 0.017

RI
(0.037) (0.029) (0.020) (0.024) (0.038)
Natural_reserve 0.366** 0.216 0.043 0.039 0.001

SC
(0.181) (0.127) (0.135) (0.089) (0.101)
Openness 0.398 0.589 0.324 0.079 0.264
(0.579) (0.497) (0.386) (0.297) (0.489)
NU
Population -0.450 -0.175 -0.073 -0.242* -0.003
(0.332) (0.261) (0.181) (0.135) (0.350)
ODA 0.426 0.098 0.076 0.145 0.372**
MA

(0.349) (0.258) (0.145) (0.101) (0.167)

Year dummy Yes Yes Yes Yes Yes

Pseudo R2 0.191 0.210 0.215 0.238 0.182
D

N 517 517 517 517 517

E

Notes: Tables A3 reports the regression results when aid_1 and Imports/Exports are considered.
Standard errors are reported in parentheses. Standard errors are corrected for clustering of the
PT

error term at the industry level. ***, ** and * indicate significance at the 10, 5 and 1 percent
levels, respectively.
CE
AC

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Table A4. The quantile regression of Aid_2 and imports/exports on ODI

Dep. Variable ODI
Q10 Q25 Q50 Q75 Q90
Aid_2 0.046 -0.039 0.091* 0.007 -0.029
(0.070) (0.086) (0.048) (0.037) (0.057)
Export 0.863*** 0.540*** 0.491*** 0.340*** 0.263
(0.172) (0.138) (0.088) (0.098) (0.246)
Import 0.083 0.219** 0.250*** 0.171** 0.134
(0.172) (0.107) (0.088) (0.084) (0.107)
GDP_pcap 0.323 -0.040 0.030 0.247* 0.232

PT
(0.269) (0.135) (0.146) (0.135) (0.293)
GDP_growth 0.001 0.022 0.006 0.020 0.025

RI
(0.038) (0.031) (0.016) (0.019) (0.037)
Natural_reserve 0.322* 0.239 0.049 0.067 0.015

SC
(0.187) (0.160) (0.161) (0.107) (0.082)
Openness 0.555 0.569 0.585 0.036 0.457
(0.515) (0.449) (0.419) (0.339) (0.476)
NU
Population -0.539 -0.213 -0.076 -0.260* 0.232
(0.337) (0.202) (0.153) (0.155) (0.3641)
ODA 0.462 0.159 0.074 0.109 0.351*
MA

(0.320) (0.213) (0.126) (0.127) (0.187)

Year dummy Yes Yes Yes Yes Yes

Pseudo R2 0.191 0.210 0.215 0.235 0.181
D

N 517 517 517 517 517

E

Notes: Tables A4 reports the regression results when aid_2 and Imports/Exports are considered.
Standard errors are reported in parentheses. Standard errors are corrected for clustering of the
PT

error term at the industry level. ***, ** and * indicate significance at the 10, 5 and 1 percent
levels, respectively.
CE
AC

35
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Table A5. The quantile regression of Aid_3 and imports/exports on ODI

Dep. Variable ODI
Q10 Q25 Q50 Q75 Q90
Aid_3 -0.127 -0.103 -0.072 -0.063 -0.050
(0.113) (0.098) (0.084) (0.03) (0.139)
Export 0.839*** 0.625*** 0.478*** 0.345*** 0.152
(0.224) (0.187) (0.101) (0.097) (0.231)
Import 0.115 0.173* 0.219*** 0.174** 0.161*
(0.154) (0.096) (0.082) (0.075) (0.092)
GDP_pcap 0.235 -0.019 0.174 0.251* 0.341

PT
(0.250) (0.151) (0.155) (0.137) (0.280)
GDP_growth 0.005 0.032 0.001 0.012 -0.006

RI
(0.035) (0.029) (0.019) (0.020) (0.036)
Natural_reserve 0.358* 0.270* 0.047 0.069 0.014

SC
(0.195) (0.139) (0.140) (0.092) (0.093)
Openness 0.424 0.600 0.415 0.049 0.387
(0.624) (0.522) (0.440) (0.298) (0.460)
NU
Population -0.468 -0.247 -0.059 -0.265* -0.263
(0.312) (0.241) (0.170) (0.142) (0.291)
ODA 0.457 0.153 0.160 0.121 0.435***
MA

(0.295) (0.204) (0.122) (0.118) (0.158)

Year dummy Yes Yes Yes Yes Yes

Pseudo R2 0.195 0.211 0.210 0.235 0.180
D

N 517 517 517 517 517

E

Notes: Tables A5 reports the regression results when aid_3 and Imports/Exports are considered.
Standard errors are reported in parentheses. Standard errors are corrected for clustering of the
PT

error term at the industry level. ***, ** and * indicate significance at the 10, 5 and 1 percent
levels, respectively.
CE
AC

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Table A6. The quantile regression of Aid_4 and imports/exports on ODI

Dep. Variable ODI
Q10 Q25 Q50 Q75 Q90
Aid_4 -0.097 -0.210** -0.048 -0.059 -0.076
(0.148) (0.105) (0.083) (0.065) (0.125)
Export 0.846*** 0.555*** 0.535*** 0.342*** 0.194
(0.214) (0.120) (0.083) (0.085) (0.226)
Import 0.117 0.245*** 0.215*** 0.163*** 0.131
(0.140) (0.074) (0.083) (0.062) (0.100)
GDP_pcap 0.156 0.161 0.240** 0.342** 0.310

PT
(0.227) (0.180) (0.118) (0.154) (0.213)
GDP_growth 0.024 0.049 0.034** 0.017 0.043

RI
(0.041) (0.030) (0.014) (0.016) (0.027)
Natural_reserve 0.210 0.209 0.037 0.003 0.079

SC
(0.179) (0.153) (0.098) (0.076) (0.093)
Openness 0.544 0.137 0.027 0.198 0.021
(0.476) (0.442) (0.354) (0.404) (0.425)
NU
Population -0.000 -0.391 -0.329* -0.493 -0.572
(0.333) (0.238) (0.173) (0.189) (0.243)
ODA 0.156 0.154 0.089 0.090 0.014
MA

(0.239) (0.225) (0.140) (0.111) (0.222)

Year dummy Yes Yes Yes Yes Yes

Pseudo R2 0.190 0.214 0.208 0.235 0.182
D

N 517 517 517 517 517

E

Notes: Tables A6 reports the regression results when aid_4 and Imports/Exports are considered.
Standard errors are reported in parentheses. Standard errors are corrected for clustering of the
PT

error term at the industry level. ***, ** and * indicate significance at the 10, 5 and 1 percent
levels, respectively.
CE
AC

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Table A7. The quantile regression of total aid and trade on ODI
Dep. Variable ODI
Q10 Q25 Q50 Q75 Q90
Aid_all 0.004 0.008 0.064 -0.013 -0.024
(0.074) (0.058) (0.052) (0.032) (0.052)
Trade 0.910*** 0.776*** 0.712*** 0.620*** 0.690***
(0.219) (0.107) (0.105) (0.123) (0.199)
GDP_pcap 0.100 -0.006 0.211* 0.215 0.037
(0.281) (0.124) (0.126) (0.139) (0.038)
GDP_growth 0.039 0.018 0.005 0.001 -0.009

PT
(0.041) (0.022) (0.016) (0.024) (0.038)
Natural_reserve 0.149 0.112 0.010 0.069 0.013

RI
(0.189) (0.123) (0.116) (0.078) (0.094)
Openness 0.614 0.490 0.779 0.266 0.183

SC
(0.538) (0.440) (0.423) (0.378) (0.596)
Population -0.451 -0.131 -0.020 -0.209 -0.096
(0.319) (0.229) (0.189) (0.143) (0.222)
NU
ODA 0.383 0.148 0.218 0.164 0.268
(0.339) (0.225) (0.151) (0.132) (0.184)
MA

Year dummy Yes Yes Yes Yes Yes

Pseudo R2 0.176 0.218 0.223 0.244 0.203
N 517 517 517 517 517
Notes: Tables A7 reports the regression results when trade and aid_all are considered. Standard
D

errors are reported in parentheses. Standard errors are corrected for clustering of the error term
E

at the industry level. ***, ** and * indicate significance at the 10, 5 and 1 percent levels,
respectively.
PT
CE
AC

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Highlights for reviewers:

1. Dataset has been updated by including new samples from 2012 to 2013.
2. New results are consistent with original findings.
3. Key statistics on trade and FDI have been updated till 2015.
4. Literatures have been updated and reorganized.
5. “Composition of trade ”has been further studied in Section 5.

PT
RI
SC
NU
MA
E D
PT
CE
AC

39