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Did 272 billion dollars from China help stabilize business cycle fluctuations in recipient countries?

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  • Loujaina Abdelwahed
  • Georgios Karras

Abstract

Why are foreign official flows mostly procyclical when countercyclical flows would raise welfare in recipient countries without added costs to donors? The prevalent set of explanations relies on the behavior of donor countries, as they are the ones who decide the timing of their official flows. The present study tests this by considering Chinese official flows, which are known to be demand driven. We examine the business cycle characteristics of China's official financing in the form of Official Development Assistance (ODA) and less concessional Other Official Flows (OOF) to developing countries and compare it to the business cycle characteristics of bilateral and multilateral aid commitments from traditional donors. Using data on China's official finance commitments over the period 2000 to 2014, we find that both China's ODA and OOF commitments are mostly acyclical with respect to recipients' output fluctuations and procyclical with respect to their fiscal revenue. We conclude that official flows fail to be countercyclical even when recipient countries are in the driver's seat.

Suggested Citation

  • Loujaina Abdelwahed & Georgios Karras, 2021. "Did 272 billion dollars from China help stabilize business cycle fluctuations in recipient countries?," Review of International Economics, Wiley Blackwell, vol. 29(2), pages 314-358, May.
    • Handle: RePEc:bla:reviec:v:29:y:2021:i:2:p:314-358
    DOI: 10.1111/roie.12513
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