Illuminating Insights: Chinese Infrastructure Projects Increase Economic Activity in the sub-Saharan African Region

By Yan Wang and Yinyin Xu

Infrastructure investment is an indispensable driver of development in sub-Saharan Africa (SSA) and many other developing regions, especially amid weak and uneven recovery from the COVID-19 pandemic and several rounds of capital flight associated with monetary tightening in advanced countries.

Over the past two decades, China has become the largest financier of infrastructure in SSA. As the International Monetary Fund (IMF) recently found, Chinese loans to SSA, mostly to finance public infrastructure projects, have risen rapidly in the region over the past two decades. However, China’s overseas lending and development finance has often been associated with controversies and misconceptions.

Large infrastructure projects can have spillover effects – positive or negative – in neighboring regions or counties, where local economic activities can be directly impacted by the projects. Until recently, spatial analysis on the spillover effects of Chinese investments in SSA was limited due to a lack of project-level transparency from the Chinese financiers, among other challenges. Building on the findings of a previous study on the bottleneck-releasing effects of infrastructure investment and building in SSA, a new working paper further investigates whether Chinese infrastructure projects have spatial spillover effects across micro-regional borders.

Using data from the China’s Overseas Development Finance (CODF) Database managed by the Boston University Global Development Policy Center and the Global Chinese Development Finance Dataset managed by AidData at the College of William and Mary, the authors examine infrastructure projects in the sectors of power, transportation, telecommunications, water and wastewater. They compiled a large panel dataset of 4,385 second-order administrative regions (equivalent to municipalities) in 48 SSA countries from 2008-2021 using GIS techniques.

Chinese infrastructure projects have positive spatial spillover effects in SSA

To measure spillover effects, the authors measure nighttime luminosity as a proxy for economic activity. Visually, the region grew brighter over the observed period, indicating stronger economic activities in most of the region. The analysis shows that Chinese infrastructure projects increase economic activities in the second sub-national level regions in SSA through both direct impacts and spatial spillovers. After controlling for the existence of World Bank projects, country, sub-national region, and time-fixed effects, we find these effects to be positive and statistically significant. Previous studies that failed to include the spatial factors in their empirical estimation models may have underestimated the total impacts. Figure 1 displays the nighttime luminosity in SSA countries and studied regions in 2008 and 2021.

Figure 1: Nighttime Luminosity in SSA Countries, Studied Regions, 2008 and 2021

The empirical findings of this study cannot replace detailed project-by-project monitoring and evaluation using other indicators at completion and the impact evaluation five years after completion. It is worth noting that infrastructure projects have both local and “cross-border” effects, as the space is not homogenous or isotropic. Future research can further evaluate the welfare impact of the completed infrastructure projects such as railways and highways, Special Economic Zones, and industrial parks. Empirical questions for the future may include whether the infrastructures increase the land value in the region, whether they have attracted private investments and promoted industrial clustering, whether economic stability is sustained, and others.

Creating a virtuous cycle

As a responsible development partner and financier, China should fully utilize its resources and build capacity in high-quality cooperative project management, especially in monitoring and evaluation and impact evaluation five years after project completion.

Stakeholders should emphasize the issue of promoting results-based project management through the agenda of the upcoming Forum on China-Africa Cooperation and the next Belt and Road Forum for International Cooperation. Result-based project management will inherently strengthen the reliability of project supply chains through quality control and improve accountability. From a practical perspective, the authors recommend promoting accountable and socially responsible international consulting and technical assistance mechanisms, which can be established among development practitioners from China, host countries and international organizations. Such mechanisms can serve as a new engine of high-quality growth for the Belt and Road Initiative, which will promote transparency and accountability in lending and borrowing countries while generating jobs for educated youth in China and Africa and serving the global development agenda for a green and sustainable future.

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Yinyin Xu is a graduate student in the Graduate Program in Regional Science at Department of City and Regional Planning, Cornell University. She has assisted Dr. Yan Wang with several research papers and works on sovereign debt and China-Africa debt restructuring history from the perspective of New Structural Economics.

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