Racing for Influence: US-China Foreign Aid Competition and Domestic Politics of Recipient States

Abstract

Major powers usually aim to project their image and influence globally, with foreign aid being their primary tool. With the growing ambitions and capabilities of China in a US-led international system, foreign aid is becoming an important realm of contention for the superpowers. Yet, quantitative research on strategic aid competition between great powers is relatively scant. This paper contributes to the literature by studying how recipient states’ domestic politics shape aid-giving behaviors of the US and China. Using simultaneous equations models and instrumental variables, this study finds that American and Chinese aid tend to avoid each other – each donor reducing aid to countries that receive more of the rival donor’s assistance due to their uncertainty about each side aid’s return on investment. On the other hand, the US and China may directly compete – simultaneously increasing aid – to democratic recipients, who maintain moderate policies and are open to aid from both superpowers. Competition is intensified especially when these democracies experience political turnovers, which provide opportunities for the donors to curry favor to new ruling coalitions as well as certainty for either donor’s return on investment. The findings improve our understanding of how domestic politics and changing preferences of recipients shape the larger US-China competition.