Can money buy friendship?—Evidence from the US and China’s competition for influence through foreign aid

Abstract

Using bilateral aid data from 47 donors to 194 recipients, we find that while donors reward good relationship with more foreign aid, recipients sweeten their political relations with donors only after aid cuts. The negative impact of aid on political relations is more pronounced after the Cold War, in politically stable regions, and in countries where China and the U.S are both donors. We provide evidence that the competition for influence among donors with distinct political pursuits and the conflicts between donors and recipients in aid implementation are driving the results.