By Jetson Leder-Luis

Development aid is a potentially powerful tool for promoting economic growth among the world’s poor. However, development aid is plagued by corruption, as Jetson Leder-Luis explains.

Development aid is a potentially powerful tool for promoting economic growth among the world’s poor. However, development aid is plagued by corruption, in no small part because many of the poorest areas are also the most susceptible to corruption. In addition to that dilemma, some research suggests that the injection of outside funds into existing corrupt societies can actually exacerbate governance problems. Is this true? And does the impact of development aid on corruption (and development) depend on the source of the aid? An important new paper by Ann-Sofie Isaksson and Andreas Kotsadam suggests that the answers are yes and yes—in particular, they find that Chinese aid projects in Africa may worsen local corruption.

To investigate the question whether Chinese aid projects affect local corruption in Africa, the authors combine data from separate sources. For data on local corruption, the authors make use of the Afrobarometer surveys, with data on nearly 100,000 respondents in 29 countries, collected over a 12 year period (2000-2012) in four separate surveys. The authors focus in particular on respondents’ answer to questions about the frequency of paying bribes to avoid problems with the police or to obtain documents or permits. The authors use the geographic location of survey respondents, together with information on the geographic location of 227 Chinese-aid-supported projects in Africa, in order to identify those respondents who live geographically close to a project supported by Chinese development aid. The results are stark: African citizens who live in areas with Chinese-sponsored projects are 4 percentage points more likely to pay a bribe to police, and 2 percentage points more likely to pay a bribe for permits or documents. Given baseline reported bribery rates of about 13-14%, this means that citizens living near a Chinese aid project are about 30% more likely to report paying a bribe to the police, and about 15% more likely to report paying a bribe for a permit or document.

The most natural explanation is that Chinese aid projects tend to stimulate more corruption. There are, of course, a number of other possible explanations, which the authors address and for the most part rule out, or at least suggest are unlikely:

  • First, it could be that the Chinese government tends to target its aid projects in areas where corruption is already worse, for whatever reason. (Most charitably, the Chinese government might target needier areas, which are also more corrupt; less charitably, the Chinese government may find it easier to operate in more corrupt regions.) But the authors test this by comparing respondents who live near Chinese projects that are already underway with respondents who live near projects that are planned but not yet implemented. They find that reported corruption in those areas where a project is underway is notably higher than in areas where a project is planned but not yet started, but no difference between not-yet-active planned projects and areas away from projects. This suggests that the higher corruption rate in areas with a Chinese development project cannot be explained solely by the fact that the Chinese government is more likely to target projects at areas with more pre-existing corruption.
  • Second, while the pessimistic interpretation of the main finding is that Chinese aid contributes to corruption, a more optimistic interpretation is that the reason this occurs is because these Chinese-sponsored development projects are successful in generating economic activity, and that the rise in corruption is a natural consequence of a more robust economy. When there’s more to steal, people steal more, even if underlying rates of integrity are unaffected. But the authors control for the overall amount of economic activity by using “lights at night” data (a measure of nighttime light emission per square kilometer), which many economists consider to be a reliable method for measuring economic activity, especially in underdeveloped rural areas. When comparing active to planned Chinese projects, the authors find no differences in this measure of economic activity, which indicates that the increase in corruption is not due to increased economic prosperity (and, perhaps more damningly, suggests that the Chinese aid projects do not produce a substantial increase in economic activity).
  • Third, maybe the difference in reported bribery rates is due to an increase in police presence near the project, along with an increase in the number of citizens who need to apply for permits or documents (again, possibly because of the project’s effects on local economic activity). But the authors convincingly show the opposite: those living near Chinese aid projects have less contact with the police, and apply for fewer documents, than do other citizens, yet they still report greater experience with corruption in both contexts. (The decreased contact with police and permitting authorities may be due to the fact that, when corruption increases, people avoid the police and bureaucracy.)

If we rule out these other, more benign possibilities, we are left with the conclusion that Chinese development projects seem to increase corruption. Moreover, the article provides some evidence that is a phenomenon particular to Chinese projects, rather than to development aid projects more generally. The authors run the same battery of tests using World Bank projects rather than Chinese aid projects, and find that citizens who live near a World Bank development project are not more likely to report bribery experience, but those areas do see an increase in nighttime light activity. In other words, World Bank aid projects seem to be associated with a measurable increase in local economic development, but no measurable increase in local corruption, while Chinese aid projects appear to be associated with a measurable increase in local corruption, but no measurable increase in local economic development. Why would this be?

The authors suggest that the answer may have to do with the transmission of norms. In particular, the authors argue that China has weak anticorruption norms, and that these norms spread through development aid projects to local police and bureaucrats—in part because the Chinese government takes little active role in fighting corruption in its projects, and also because the Chinese government and its contractors themselves engage in corrupt practices. The authors don’t really have the data that would allow them to test this mechanism. They do find that respondents who live near a Chinese project are less likely than other respondents to say that the media should investigate and report on corruption, which they argue supports the view that the Chinese presence weakens anticorruption norms. I’m skeptical, though, that this finding tells us much. There are many potential mechanisms by which Chinese projects might increase corruption, and the authors have not convincingly shown that they can measure norms in a robust way.

While questions regarding the mechanism remain open, the fact that Chinese-sponsored development projects are associated with worse corruption, and are not particularly good for development, reflects poorly on China and raises questions as to whether African countries should be skeptical of Chinese development assistance, given that the costs of such aid may outweigh the benefits.

This blog was originally published on GAB | The Global Anticorruption Blog Law, Social Science, and Policy

Disclaimer: The ideas expressed in this article reflect the author’s views and not necessarily the views of The Big Q.