Amid a weak and uneven economic recovery in the Global South, regional development and infrastructure investment seem to be critical to sustainable development. In particular, infrastructure provision is seen as an “unmissable driver for development” in the sub-Saharan Africa (SSA) region. Aside from institutional reasons, physical infrastructure is critical in facilitating market integration and freeing lagging regions from the poverty trap. In many SSA countries, regional development goals are often associated with the public infrastructure provision to increase productivity and promote welfare.
Over the past 20 years, China has grown to be the largest financier and constructor of infrastructure in SSA. Have Chinese investment projects directly impacted local economic activities in SSA countries? And are there spatial spillover effects from those infrastructure projects across regional borders?
In a new working paper, Yan Wang and Yinyin Xu use aspatial and spatial econometrics analysis to gauge the impact of Chinese infrastructure projects on economic activities in local jurisdictions in SSA. Using data from the China’s Overseas Development Finance (CODF) Database managed by the Boston University Global Development Policy Center and the Global Chinese Development Finance Dataset managed by AidData at the College of William and Mary, the authors examine infrastructure projects in the sectors of power, transportation, telecommunications, water and wastewater. They compiled a large panel dataset of 4,385 second-order administrative regions (equivalent to municipalities) in 48 SSA countries from 2008-2021 using GIS techniques.
They find that the existence of Chinese infrastructure projects leads to increased economic activity proxied by nighttime luminosity and notable positive spillovers in neighboring jurisdictions in the SSA region.
Main findings:
- The existence of at least one Chinese infrastructure project in a second sub-national region (or an equivalent administrative region) in SSA is associated with a roughly 5 percentage point direct increase in nighttime luminosity and about 10-15 percentage increase in nighttime luminosity as the indirect impact in the region.
- These impacts are statistically positive and significant after controlling for multiple factors, whereas World Bank projects in the region do not show a significant association with the nighttime luminosity increase in the micro-regions.
- Chinese infrastructure projects play a critical role in narrowing gaps in SSA countries’ urban development, unlocking further development potential and sustaining economic growth in the long term.
- To accurately gauge the impact of Chinese infrastructure projects in recipient countries, Wang and Xu argue that it is crucial to consider spatial spillovers.
- As a development partner, China is still on an upward learning curve to deliver high-quality development cooperation projects, and its institutions need to be established and its capacity strengthened. As a responsible development partner and financier, China should fully utilize its resources and build capacity in high-quality cooperative project management.
- The Chinese government and development finance institutions (DFIs) need to work with established multilateral development banks (MDBs) on monitoring and evaluation, and build awareness and technical capacity in independent evaluation.
Considering the upcoming Forum on China-Africa Cooperation later this year, the authors argue it is high time to recognize the direct and spillover impacts of infrastructure investment. They argue that stakeholders have the incentives to bring the issue of promoting results-based project management to the agenda, completing the project supply chains with quality control and strengthening accountability. From a practical perspective, the authors recommend promoting accountable and socially responsible international consulting and technical assistance mechanisms, which can be established among development practitioners from China, host countries and international organizations. Such mechanisms can serve as a new engine of high-quality growth for the Belt and Road Initiative, which will promote transparency and accountability in lending and borrowing countries while generating jobs for educated youth in China and Africa and serving the global development agenda for a green and sustainable future.