Speaker
Description
As Chinese lending has grown to dominate global development finance, understanding its impact on other capital flows has become increasingly important. This paper provides the first causal evidence on how public investment through China’s Belt and Road Initiative (BRI) influences cross border private capital flows to emerging markets, and how geopolitical alignment moderates this relationship. To achieve this, I leverage a unique natural experiment setting: the staggered signing of a memorandum of understanding (MoU) to join the BRI. My analysis combines security level investment data before and after a country signs a BRI MoU coupled with a generalized difference-in-differences empirical strategy. I find that geopolitical alignment with China plays a critical role: for countries closely aligned with China, signing a BRI MoU crowds in private capital, i.e equity and bond investments. Conversely, for countries with less alignment, signing the MoU results in a crowding-out effect. These findings offer new insights into the strategic role of geopolitical alignment in shaping capital flows.
| Keyword | Foreign Aid |
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