Evaluating the Local Impact of Foreign Infrastructure Investments on Poverty: Case of the China-Pakistan Economic Corridor

Abstract: This research estimates the impact of Chinese aid infrastructure on local economic development and poverty alleviation in developing countries using the China-Pakistan Economic Corridor (CPEC) as a case study. CPEC is a cardinal extension of China’s Belt and Road Initiative (BRI) inaugurated by President Xi Jinping on his visit to Pakistan in 2015. I use different unique georeferenced data sources, and two empirical strategies (IV regression and Difference-in-Difference) to estimate the causal effect of Chinese infrastructure investments. My first strategy employs GIS and remote-sensing techniques to estimate the effect of CPEC projects on nocturnal luminosity, a proxy for economic development, at the Tehsil (3rd Administrative) level. The results are further complemented by the estimated effect of the projects on mean Multidimensional Poverty scores computed at the district (2nd Administrative) level using the Pakistan Standard of Living Measurement (PSLM) survey data. In combination, my primary analysis indicates a strong net-positive effect of the corridor projects on local economic development and poverty alleviation. Moreover, extension of the baseline results also show that the effect significantly varies not just by project type, but also by their duration and location (pre-existing levels of regional industrialization). Similarly, my findings also indicate that the positive effect stems from both direct and indirect channels. This research primarily contributes to the wider debates on China’s aid diplomacy in the global south vis-a-vis other aids from multilateral donors such as the World Bank, especially amidst rising concerns of Chinese aid being a “debt trap”.

 

Bio: Ashar is an aspiring Economic Geographer and holds an MSc in Local Economic Development from the London School of Economics and Political Science (LSE), and a BSc in Social Development and Policy from Habib University. Primarily, his research focuses on the effects of aid infrastructure on economic development and poverty in Pakistan. Moreover, he is also interested in areas such as urban policy, land inequality,  political institutions and their impact on local economic development.