On the link between Japanese ODA and FDI in China: a microeconomic evaluation using conditional logit analysis

This study investigates the effectiveness of Japan's official development assistance in promoting foreign direct investments inflows in the case of the People's Republic of China. Conditional logit analysis using province level statistics from 1980 to 1999, shows that Japanese aid flows did have a significant positive impact on private investors location choice even though other profit-maximizing factors such as the level of economic activity had a leading spillover effect. In a context of growing scarcity of aid, the study concludes by asserting the importance of a complementary process in which foreign aid is aimed at enhancing the development of infrastructures, acting as a pre-requisite for future direct investments. Finally, Japan providing an interesting case study, we stress the need for a better cooperation between public and private sectors in development assistance programmes.