Measuring the Efficiency of China’s Foreign Direct Investment in Ghana

Abstract

This research examines the efficiency and influencing aspects of China's Foreign Direct Investment to Ghana using quarterly time series data from 2003 to 2020. To achieve the objectives of the study, a stochastic frontier model in which technical inefficiency impacts are specified to be a function of Economic Index variables is estimated using the generalized maximum likelihood approach. The mean technical efficiency of the Chinese FDI to Ghana is 0.80. The correlation analysis reveals apart from GDP per capita of China and Ghana, all other variables correlate positively with Chinese FDI to Ghana. The results from stochastic estimates show all frontier determinant factors are significant influencing factors of China's FDI to Ghana except Ghana's GDP per capita. However, Ghana's GDP, and China's GDP per capita had negative influence on China's FDI to Ghana while China's GDP, natural resource rents to GDP and Ghana's GDP per capita had positive impacts on China's FDI to Ghana. The analysis reveals that China's overall performance to Ghana is semi-highly efficient. The study suggests expansion and attractive pricing policies, and natural resource conservation program be put in place by the Ghanaian and Chinese government to attract more Foreign Direct Investment while preserving natural resources.