Aid Projects and Firm Performance

This paper evaluates the effects of regional development aid projects from China and the World Bank on firm performance, and considers the role of supply-side constraints of the firms as channels of transmission. We find that, contrary to the World Bank, Chinese ODA projects increase firm sales, such that one percent increase in Chinese ODA commitments increases firm sales growth by 3 percent. Compared to sector-specific, Chinese region-specific aid positively affects firm performance. Moreover, we find some evidence that Chinese ODA intervention crowds out local firms operating in the mineral sector, which is one of the most financed by China. Finally, we show that the positive effect of Chinese aid is stronger for firms lacking access to finance and electricity infrastructure, suggesting that Chinese aid may improve firm performance by releasing their financing and infrastructure constraints