This paper fills the gap in the Sudanese literature and discusses the
effectiveness of Chinese aid for financing development in Sudan using
new primary data at the micro level. We find that the Chinese share in
total loans and grants offered to Sudan greatly increased from 17% in
1999 to 73% in 2007 out of total loans and grants offered to Sudan. We
find that Chinese aid and loans to Sudan caused mixed positive-negative
impacts. The positive impact is providing alternative complementary
sources of finance to complement domestic capital and financing
development projects. The negative impact is increasing Sudan's debts to
China from 0.9% in 1999 to 13.45% in 2007 out of Sudan's total debts. We
find that the effectiveness of Chinese aid to Sudan is undermined by
offering aid tied to trade, FDI and importance of oil to the Chinese
economy. We explain that despite the recent global economic crisis China
has maintained offering tied aid to maintain its access to oil in Sudan.
We find that despite a long period of economic sanctions, Sudan was able
to grow thanks to the robust and increasing intensification of special
economic relations with China which relaxed the development finance
constraint. From the perspective of the new approaches to financing
development our findings imply that even when a country is facing
binding political and economic sanctions, it can still be able to
finance a high growth strategy if it is endowed with natural resources
and a partner that is in need for such resources.
Keywords: Financing Development, aid effectiveness, China, Sudan.
JEL classification: F30, F34, F35, O10