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

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  • Asmus-Bluhm, Gerda
  • Eichenauer, Vera Z.
  • Fuchs, Andreas
  • Parks, Bradley

Abstract

China and India increasingly provide aid and credit to developing countries. This article explores whether India uses these financial instruments to compete for geopolitical and commercial influence with China. 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.

Suggested Citation

  • Asmus-Bluhm, Gerda & Eichenauer, Vera Z. & Fuchs, Andreas & Parks, Bradley, 2025. "Does India Use Development Finance to Compete With China? A Subnational Analysis," Open Access Publications from Kiel Institute for the World Economy 323600, Kiel Institute for the World Economy.
    • Handle: RePEc:zbw:ifwkie:323600
    DOI: 10.1177/00220027241228184
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    References listed on IDEAS

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    1. Raechelle Mascarenhas & Todd Sandler, 2006. "Do donors cooperatively fund foreign aid?," The Review of International Organizations, Springer, vol. 1(4), pages 337-357, December.
    2. Bluhm, Richard & Dreher, Axel & Fuchs, Andreas & Parks, Bradley C. & Strange, Austin M. & Tierney, Michael J., 2025. "Connective financing: Chinese infrastructure projects and the diffusion of economic activity in developing countries," Journal of Urban Economics, Elsevier, vol. 145(C).
    3. Alexandra O. Zeitz, 2021. "Correction to: Emulate or Differentiate? Chinese development finance, competition, and World Bank infrastructure funding," The Review of International Organizations, Springer, vol. 16(4), pages 933-938, October.
    4. Axel Dreher & Andreas Fuchs & Bradley Parks & Austin Strange & Michael J. Tierney, 2021. "Aid, China, and Growth: Evidence from a New Global Development Finance Dataset," American Economic Journal: Economic Policy, American Economic Association, vol. 13(2), pages 135-174, May.
    5. Humphrey, Chris & Michaelowa, Katharina, 2019. "China in Africa: Competition for traditional development finance institutions?," World Development, Elsevier, vol. 120(C), pages 15-28.
    6. Hainmueller, Jens & Mummolo, Jonathan & Xu, Yiqing, 2019. "How Much Should We Trust Estimates from Multiplicative Interaction Models? Simple Tools to Improve Empirical Practice," Political Analysis, Cambridge University Press, vol. 27(2), pages 163-192, April.
    7. Kaya, Ayse & Kilby, Christopher & Kay, Jonathan, 2021. "Asian Infrastructure Investment Bank as an instrument for Chinese influence? Supplementary versus remedial multilateralism," World Development, Elsevier, vol. 145(C).
    8. Axel Dreher & Stephan Klasen & James Raymond Vreeland & Eric Werker, 2013. "The Costs of Favoritism: Is Politically Driven Aid Less Effective?," Economic Development and Cultural Change, University of Chicago Press, vol. 62(1), pages 157-191.
    9. Joshua D. Angrist & Jörn-Steffen Pischke, 2009. "Mostly Harmless Econometrics: An Empiricist's Companion," Economics Books, Princeton University Press, edition 1, number 8769, December.
    10. Dreher, Axel & Fuchs, Andreas & Hodler, Roland & Parks, Bradley C. & Raschky, Paul A. & Tierney, Michael J., 2021. "Is Favoritism a Threat to Chinese Aid Effectiveness? A Subnational Analysis of Chinese Development Projects," World Development, Elsevier, vol. 139(C).
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    Cited by:

    1. Emmanuel Caiazzo & Pietro Panizza & Alberto Zazzaro, 2026. "Contesting Influence: U.S. Aid Responses to Chinese Financing," CSEF Working Papers 788, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
    2. Perrotta Berlin, Maria & Lvovkskyi, Lev, 2025. "Russia’s Involvement on the African Continent and its Consequences for Development: The Aid Channel," SITE Working Paper Series 64, Stockholm School of Economics, Stockholm Institute of Transition Economics.

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