Income Inequality and the Allocation of China’s Foreign Aid

Literature on the impacts of Chinese development finance to developing countries has suggested that China’s links to the global economy are contingent on their foreign policy. This study, however, concludes that China’s foreign aid was directed not to countries with poor economic conditions, but toward inefficient and mismanaged economies with higher income inequality. We used a negative binomial model with a mixed effect to estimate the relationship between income inequality and China’s foreign aid between 2000 and 2017. Our findings show that the more pronounced the income inequality in a state, the more likely it will receive aid from Beijing.