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Economic Investment, Corruption, Fragility, and Freedom: How the Prc Leverages States’ Pre-Existing Internal Conditions to Gain Advantage

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Economic Investment, Corruption, Fragility, and Freedom: How the Prc Leverages States’ Pre-Existing Internal Conditions to Gain Advantage Calhoun: The NPS Institutional Archive DSpace Repository Theses and Dissertations 1. Thesis and Dissertation Collection, all items 2019-12 ECONOMIC INVESTMENT, CORRUPTION, FRAGILITY, AND FREEDOM: HOW THE PRC LEVERAGES STATES’ PRE-EXISTING INTERNAL CONDITIONS TO GAIN ADVANTAGE Griffin, John J., IV; Mckinley, Andrew J.; Rastello, Erik A.; Wiblin, Wesley A. Monterey, CA; Naval Postgraduate School http://hdl.handle.net/10945/64175 Downloaded from NPS Archive: Calhoun NAVAL POSTGRADUATE SCHOOL MONTEREY, CALIFORNIA THESIS ECONOMIC INVESTMENT, CORRUPTION, FRAGILITY, AND FREEDOM: HOW THE PRC LEVERAGES STATES’ PRE-EXISTING INTERNAL CONDITIONS TO GAIN ADVANTAGE by John J. Griffin IV, Andrew J. Mckinley, Erik A. Rastello, and Wesley A. Wiblin December 2019 Thesis Advisor: Timothy C. Warren Second Reader: Robert E. Burks Approved for public release. Distribution is unlimited. THIS PAGE INTENTIONALLY LEFT BLANK Form Approved OMB REPORT DOCUMENTATION PAGE No. 0704-0188 Public reporting burden for this collection of information is estimated to average 1 hour per response, including the time for reviewing instruction, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information. Send comments regarding this burden estimate or any other aspect of this collection of information, including suggestions for reducing this burden, to Washington headquarters Services, Directorate for Information Operations and Reports, 1215 Jefferson Davis Highway, Suite 1204, Arlington, VA 22202-4302, and to the Office of Management and Budget, Paperwork Reduction Project (0704-0188) Washington, DC 20503. 1. AGENCY USE ONLY 2. REPORT DATE 3. REPORT TYPE AND DATES COVERED (Leave blank) December 2019 Master's thesis 4. TITLE AND SUBTITLE 5. FUNDING NUMBERS ECONOMIC INVESTMENT, CORRUPTION, FRAGILITY, AND FREEDOM: HOW THE PRC LEVERAGES STATES’ PRE-EXISTING INTERNAL CONDITIONS TO GAIN ADVANTAGE 6. AUTHOR(S) John J. Griffin IV, Andrew J. Mckinley, Erik A. Rastello, and Wesley A. Wiblin 7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) 8. PERFORMING Naval Postgraduate School ORGANIZATION REPORT Monterey, CA 93943-5000 NUMBER 9. SPONSORING / MONITORING AGENCY NAME(S) AND 10. SPONSORING / ADDRESS(ES) MONITORING AGENCY N/A REPORT NUMBER 11. SUPPLEMENTARY NOTES The views expressed in this thesis are those of the author and do not reflect the official policy or position of the Department of Defense or the U.S. Government. 12a. DISTRIBUTION / AVAILABILITY STATEMENT 12b. DISTRIBUTION CODE Approved for public release. Distribution is unlimited. A 13. ABSTRACT (maximum 200 words) As the PRC has drastically increased its level of foreign direct investment (FDI) in the developing and developed worlds, a growing number of observers claim the PRC engages in “neocolonialism” and “debt-trap diplomacy.” Currently, the U.S. government lacks indicator patterns that could predict areas where the PRC will attempt to exploit investment to gain strategic concessions. Through the use of statistical analysis and the combination of multiple open-source datasets, this thesis attempts to answer the question: How does the PRC’s use of economic investment exploit pre-existing levels of corruption, fragility, and democracy to gain strategic concessions? We identify six criteria exercising substantial influence over the amount of Chinese investment flowing into a given country between the years 2006 to 2015. These criteria, ranging from a state’s fragility score, democracy rating, and rates of perceived corruption, demonstrated statistically significant effects and foretold rates of Chinese investment globally. We recommend U.S. diplomatic, economic, and defense officials use this research to more accurately predict which countries are susceptible to PRC strategic concessions and to systematically categorize countries on a spectrum ranging from “high leverage” to “low leverage” states. 14. SUBJECT TERMS 15. NUMBER OF BRI, Belt and Road Initiative, fragility, China, corruption, concession, concessions, Djibouti, PAGES Sudan, Botswana, North Korea, Indonesia, Sri Lanka 119 16. PRICE CODE 17. SECURITY 18. SECURITY 19. SECURITY 20. LIMITATION OF CLASSIFICATION OF CLASSIFICATION OF THIS CLASSIFICATION OF ABSTRACT REPORT PAGE ABSTRACT Unclassified Unclassified Unclassified UU NSN 7540-01-280-5500 Standard Form 298 (Rev. 2-89) Prescribed by ANSI Std. 239-18 i THIS PAGE INTENTIONALLY LEFT BLANK ii Approved for public release. Distribution is unlimited. ECONOMIC INVESTMENT, CORRUPTION, FRAGILITY, AND FREEDOM: HOW THE PRC LEVERAGES STATES’ PRE-EXISTING INTERNAL CONDITIONS TO GAIN ADVANTAGE John J. Griffin IV Major, United States Army BS, U.S. Military Academy, 2008 Andrew J. Mckinley Major, United States Army BS, U.S. Military Academy, 2008 Erik A. Rastello Major, United States Army BS, Western Michigan University, 2007 Wesley A. Wiblin Major, United States Army BA, Ohio University, 2008 Submitted in partial fulfillment of the requirements for the degrees of MASTER OF SCIENCE IN DEFENSE ANALYSIS (IRREGULAR WARFARE) and MASTER OF SCIENCE IN INFORMATION STRATEGY AND POLITICAL WARFARE from the NAVAL POSTGRADUATE SCHOOL December 2019 Approved by: Timothy C. Warren Advisor Robert E. Burks Second Reader Kalev I. Sepp Chair, Department of Defense Analysis iii THIS PAGE INTENTIONALLY LEFT BLANK iv ABSTRACT As the PRC has drastically increased its level of foreign direct investment (FDI) in the developing and developed worlds, a growing number of observers claim the PRC engages in “neocolonialism” and “debt-trap diplomacy.” Currently, the U.S. government lacks indicator patterns that could predict areas where the PRC will attempt to exploit investment to gain strategic concessions. Through the use of statistical analysis and the combination of multiple open-source datasets, this thesis attempts to answer the question: How does the PRC’s use of economic investment exploit pre-existing levels of corruption, fragility, and democracy to gain strategic concessions? We identify six criteria exercising substantial influence over the amount of Chinese investment flowing into a given country between the years 2006 to 2015. These criteria, ranging from a state’s fragility score, democracy rating, and rates of perceived corruption, demonstrated statistically significant effects and foretold rates of Chinese investment globally. We recommend U.S. diplomatic, economic, and defense officials use this research to more accurately predict which countries are susceptible to PRC strategic concessions and to systematically categorize countries on a spectrum ranging from “high leverage” to “low leverage” states. v THIS PAGE INTENTIONALLY LEFT BLANK vi TABLE OF CONTENTS I. INTRODUCTION AND BACKGROUND .........................................................1 II. LITERATURE REVIEW AND THEORETICAL FRAMEWORK ...............5 A. THEORIES OF INTERNATIONAL POLITICAL ECONOMY .........5 B. TRADE EXPECTATION THEORY .......................................................9 C. CORRUPTION THEORY ......................................................................11 D. HARD POWER, SOFT POWER, AND SMART POWER .................14 E. ECONOMIC THEORY IN THE CONTEXT OF THE PRC .............17 F. POWER TRANSITION THEORY IN THE CONTEXT OF THE PRC ...........................................................................................................18 G. FROM THEORY TO STRATEGY IN ACTION .................................20 H. GAP IN THE LITERATURE .................................................................24 III. QUANTITATIVE ANALYSIS OF PRC INVESTMENT ...............................27 A. DATA SOURCES ....................................................................................27 CHINESE GLOBAL INVESTMENT TRACKER ..................28 CORRUPTION PERCEPTION INDEX ...................................29 FRAGILE STATES INDEX .......................................................30 POLITY IV ...................................................................................30 PLA DIPLOMACY DATABASE ...............................................31 B. HYPOTHESES ........................................................................................31 C. METHODOLOGY ..................................................................................32 UNIT OF ANALYSIS AND VARIABLES ................................32 MODEL CONSTRUCTION .......................................................34 RESULTS .....................................................................................37 OVERALL ANALYSIS ..............................................................47 IV. CASE STUDIES BACKGROUND ....................................................................51 V. ARCHETYPICAL CASE STUDIES .................................................................53 A. DJIBOUTI ................................................................................................53 PERTINENT DATA POINTS ....................................................53 CASE STUDY DISCUSSION .....................................................53 B. SRI LANKA .............................................................................................58 PERTINENT DATA POINTS ....................................................58 CASE STUDY DISCUSSION .....................................................59 vii VI. AFRICAN CASE STUDIES ...............................................................................63 A. BOTSWANA ............................................................................................63
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