Whose Aid is Beneficial to Firms' Exports? Evidence from a Post‐disaster Aid Experiment in China

• Published date: 01 March 2024
• Author: Tan Li,Qing Liu,Lihe Xu
• Date: 01 March 2024
• DOI: http://doi.org/10.1111/cwe.12526

©2024 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 73–96, Vol. 32, No. 2, 2024 73

Whose Aid is Benef‌i cial to Firms’ Exports? Evidence

from a Post-disaster Aid Experiment in China

Tan Li, Qing Liu, Lihe Xu*

Abstract

Post-disaster aid is widely regarded as important in helping local recovery and

development. This paper examines the effectiveness of post-disaster aid on exports,

which are a driving factor of economic development. It reports a natural experiment

in China – the case of post-disaster aid following the Wenchuan earthquake in 2008 –

to examine how donors’ experiences affected the exports of manufacturing firms in

disaster-stricken counties. The export experience of the donor was important. Aid

coming from donors with more export experience was more beneficial to the exports

of firms in recipient counties than aid from less experienced donors. “Learning from

the donor” is a potential channel through which this effect occurred. That is, firms in

recipient counties learned from donors’ export experience by exporting more products

similar to those of donors, exporting more to the destination countries of donors, and

participating in the donors’ supply-chain networks by exporting more of the donors’

exports. Such “learning from the donor” effects show that knowledge spillover can

occur between spatially distant parties, which complements the literature.

Keywords: China, export, knowledge spillover, post-disaster aid

JEL codes: F14, F35, H84

I. Introduction

Post-disaster aid is an important policy tool used by governments to cope with large

shocks and to reconstruct disaster areas (Cole et al., 2017; Bulte et al., 2018; Juan et al.,

2020), but few studies have discussed how to use post-disaster aid effectively to promote

*Tan Li, Associate Professor, School of International Business, Southwestern University of Finance and

Economics, China. Email: litan@swufe.du.cn; Qing Liu, Professor, School of Economics, Renmin University

of China, China. Email: qliu1997@gmail.com; Lihe Xu (corresponding author), Professor, Institute of Studies

for the Greater Bay Area, Guangdong University of Foreign Studies, China. Email: xulihe@gdufs.edu.cn. The

authors contributed equally and are listed alphabetically by their last names. They are grateful for the useful

comments and discussion from Pinghan Liang, Hong Ma, Dahai Fu, Shiqi Guo, Xifang Sun, and referees, and

for support from the National Social Science Foundation of China (No. 23&ZD041) and the National Natural

Science Foundation of China (Nos. 71973037 and 71703128). Tan Li acknowledges financial support from the

Guanghua Talent Project of the Southwestern University of Finance and Economics.

Tan Li et al. / 73–96, Vol. 32, No. 2, 2024

©2024 Institute of World Economics and Politics, Chinese Academy of Social Sciences

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local development. No studies have considered whether donors’ advanced experience or

knowledge can spill over to recipients after the aid period to the best of our knowledge.

The extensive literature on aid and development has focused on the average effect of aid

on economic growth (Burnside and Dollar, 2004; Easterly and Pfutze, 2008). Some of

the studies have discussed the effectiveness of aid projects per se (Lin and Wang, 2016;

Liu et al., 2022), and some have touched upon the question of whose aid is important

by examining the ideological and institutional terms that donors request in aid packages

(Liu and Tang, 2018). However, whether the experience of donors, outside of aid

projects, is important, and how the match between the donors and recipients would

stimulate the local economy to achieve endogenous development through international

trade have not been considered. These are important questions for academic research

and policy purposes yet they have rarely been discussed in the literature. This paper

addresses this research gap by investigating the impact of donors’ export experience on

recipients’ exports and exploring the mechanisms involved in this.

Marshallian externality theory explains that workers may transfer their knowledge

or technology among firms when they move from one firm to another within the

industry cluster area (Marshall, 1920). Due to worker mobility and the implicit transfer

of knowledge, the average productivity of one cluster area will increase. The spillover

effect has also been discussed widely in the international trade literature, which states

that economic agents (i.e., firm, labor, or country) can learn from their peers who have

advanced knowledge if they are somehow connected. The exporter may learn from

importers and upgrade its product (Bai et al., 2017) or share the information with its

neighborhood to export to a similar market (Fernandes and Tang, 2014). As we will

show in more detail later, disaster areas are linked tightly with their more developed

donors by post-disaster reconstruction aid projects both via financial support and labor

interactions, although donors and recipients are geographically far away from each

other. This setting provides us with an opportunity to test whether a spillover effect

exists through a post-disaster aid project.

This paper exploits data on post-disaster reconstruction aid after the Wenchuan

earthquake in 2008 in China and combines it with rich export data regarding Chinese

manufacturing firms. It examines how donor capacity is important for recipient counties

by comparing firm export performance between those receiving aid from donors with

rich export experience and those receiving aid from donors with less export experience

before and after the disaster. China’s post-disaster aid after the Wenchuan earthquake

could be regarded as a natural experiment, as illustrated by Bulte et al. (2018). Although

the 18 donor provinces generally exported more than Sichuan province did, they had

very different comparative advantages and varied greatly in export performance. This