Does aid for trade promote FDI from enterprises of donors to recipient countries? Based on the spatial spillover effect of China's Aid for Trade

Abstract

AbstractThis paper investigates the direct and spatial spillover effects of China's Aid for Trade (AfT) on Chinese enterprises' foreign direct investment (FDI) in recipient countries. The results show that China's AfT can effectively promote FDI by Chinese firms in recipient countries, and the promotion effect is determined by both the direct effect and the spatial spillover effect. The mechanism test finds that China's AfT can promote FDI by Chinese firms through improving the infrastructure of the recipient countries and enhancing the image of the residents of the recipient countries toward China. The study suggests that the introduction of spatial spillover effects in the study of aid is of great significance in promoting the development of research in the field of aid. This paper enriches the conclusions of aid research in the field of economics on the one hand and broadens the boundaries of aid effectiveness research on the other hand.