(iPoster) Bypass or Embed? Institutional Fit in Chinese vs. Western Aid

• In Event: Poster Sessions: Frontiers in International Political Economy & Advanced Industrial Societies
  In Poster Session: Poster Session: Frontiers in International Political Economy

Abstract

Aid effectiveness remains a central debate in international political economy, yet the comparative mechanisms of traditional (DAC) and emerging (Chinese) donors remain under-theorized. While conventional wisdom suggests a clear division of labor. While China focusing on infrastructure and the West on governance, recent trends show a "crossover," with donors encroaching on each other's traditional sectors. This paper investigates why "consolidated" aid strategies succeed while "crossover" attempts often fail.

We propose an "Aid-Governance Fit" framework rooted in Principal-Agent theory. We argue that donor efficacy depends on how their delivery mechanisms interact with recipient governance capacity. Specifically, we posit two distinct mechanisms: a "Bypass Mechanism," where donors (like China) substitute for weak local state capacity through direct project implementation; and an "Embed Mechanism," where donors (like DAC members) rely on and complement local institutional frameworks.

To test this, we construct a sub-national panel dataset of geocoded aid projects in East Africa, matched with high-resolution nighttime light data and downscaled governance indicators. Using a dynamic panel model with two-way fixed effects, we identify the heterogeneous effects of aid types across varying governance environments.

Our findings offer a robust correction to institutional determinism. We find that Chinese infrastructure aid acts as a substitute for local governance, generating significant economic growth in low-governance environments by "bypassing" local inefficiencies. Conversely, Western infrastructure aid relies on an "embed" mechanism, yielding growth only in high-governance contexts where institutional complementarity exists. Furthermore, we find that "crossover" aid, such as Chinese social projects, often fails to generate growth because it attempts to apply hardware-style "bypass" logic to soft-sector challenges. The results suggest that aid effectiveness is not universal but conditional on the alignment between donor delivery strategies and recipient institutional maturity.

Authors

• Zeyu Chen, Tsinghua University

• Unregistered Participant