A comparative study of the determinants and effects of China, Japan and South Korea's foreign aid policies

Abstract

This study investigates the determinants and effects of foreign aid policies, exploring the adaptability of the public finance theories of the pull and push factors such as economic-demographic theory, compensation theory, and incrementalism for the East Asian donor countries. To test this, the relationships between the socioeconomic factors and the volume of aid given to their partner countries by China, Japan, and South Korea were examined utilizing panel data analysis (pull factors), correlation analysis (push factors), and ordinary least squares (OLS) regression. In the case of the pull factors, despite some conflicting signs between China, Japan, and South Korea, the economic-demographic theory factors and the compensation theory factors were strongly observed in the present study.

Regarding the push factors, economic-demographic theory (energy consumption in China, gross domestic product (GDP), GDP per capita both in Japan and South Korea), compensation theory (financial openness in Japan, trade, and financial openness in South Korea), and incrementalism (negative sign in Japan) were also observed in this study. With regards to the effects of foreign aid, through the OLS regression, the relationship between the official development assistance (ODA) average donation to a recipient country and the geometric mean of the change of each dependent variable was examined. Only China’s aid to foreign direct investment (FDI) showed a significant impact, but the cases of the other two donors did not confirm a vanguard, infrastructure, or rent-seeking effect.