Determinants of Chinese Foreign Direct Investment in Africa

Abstract

We investigate the role of institutions in attracting Chinese FDI into Africa. Focusing on market-and resource-seeking motivations, we consider whether the impact of institutions varies by motivation for FDI. Our data relates to 43 African countries over 11 years, and we use the Generalized Method of Moments to show that Chinese MNEs are market-seeking and are attracted by weaker institutions. This negative effect of institutions is especially strong in resource-rich and higher-income countries. Our study also finds that in resource-rich African countries, better infrastructure quality attracts Chinese FDI.

The determinant of Chinese foreign direct investments in oil exporting African countries

“…Not surprisingly, political stability that measures the institutional quality of the host countries has a considerable negative effect on China's FDI stock and flow in Africa. As stated by Utesch‐Xiong and Kambhampati (2021) and Drogendijk and Blomkvist (2013), China prefers to invest in countries with similar political, cultural, and economic settings. A large extent of past studies argued that China supports elite regimes, autocratic venal African leaders and have difficulty maneuvering in countries more democratic than itself (Alden, 2005; Gold et al., 2017; Michel, 2008; Tull, 2006).…”

“…In the study, 11 of all the African countries that are non‐resource base lack China's investment while all others have been witnessing Chinese infrastructure development. Similarly, Utesch‐Xiong and Kambhampati (2021) examine from 2002 to 2012 how 43 African countries institutional quality, inflation, GDP, infrastructure, and minerals resources (oil and gas, gold, copper, aluminum, diamonds, and bauxite) determine FDI from China. Using data from World Bank, World Governance Indicators, the World Bank databases, Austrian Federal Ministry of Science/Research/Economy and U.S Energy Information Administration.…”

“…Although studies of Utesch‐Xiong and Kambhampati (2021), Cheung et al. (2012), Kolstad and Wiig (2011, 2012), Drogendijk and Blomkvist (2013) and Qian (2012) used UNCTAD FDI data to examine the determinants of Chinese FDI, the shortcoming of their studies is that the duration of data covered from 2002 to 2012 is too short, making it difficult to make a reasonable conclusion on China's FDI in Africa.…”