The Causal Relationship Between China-Africa Trade, China OFDI, and Economic Growth of African Countries

Abstract

Recently, China has emerged as the largest trading partner and a significant source of investment in the African continent. Although there is consent on the increasing importance of China and Africa’s economic partnership, there are many controversies on how it affects African countries. Debates on China in Africa have, however, relied on grandiloquence rather than empirical studies. This study explores the causal link between China-Africa trade, China’s outward foreign direct (OFDI), and economic growth of 24 Sub-Saharan Africa countries from 1999 to 2018. The aggregated panel is classified into upper-middle-income, low-middle income, and low-income Sub-Saharan African countries. In the long run, key findings from the feasible generalized least squares (FGLS) estimator unveiled that; (i) China-Africa trade negatively contributes to economic growth among all panels. (ii) China’s OFDI improves economic growth in the low middle and low-income African countries whereas a significant negative liaison is evidenced in the upper-middle-income African countries. (iii) Labor force have a negative impact on economic growth whiles gross capital formation is evidenced to positively impact economic growth at all the panels. The Dumitrescu and Hurlin Granger causality unveiled a one-sided causal link from China-Africa trade to economic growth at all panels. The study proposes policy recommendations based on the results.

The Impacts of Outward Fdi on Economic Growth in Asean-8 Countries: An Empirical Insight

“…This suggests that outward FDI has a negative impact on economic growth, wherein a 1 per cent increase in outward FDI will entail a reduction in economic growth of approximately 0.443 per cent. This finding is inconsistent with the results of Amin et al (2020) and Obobisa et al (2021), who disclosed that for many developing economies, economic growth responds positively and significantly to upswings in FDI outflows. This is, therefore, a wakeup call for ASEAN-8 countries to give special attention to outward investments and implement economic policies that encourage growth in sectors to realise the benefits of outward investment on economic growth.…”

“…The effects of outward FDI on economic growth have been well documented by, amongst others. Outward FDI has greatly increased the economic growth of African countries, according to Obobisa et al (2021). Furthermore, Amin et al (2020) offered compelling evidence that outward FDI has a favourable and significant impact on Romania's economic growth, with the increase in outward FDI having a higher impact.…”

“…Furthermore, Amin et al (2020) offered compelling evidence that outward FDI has a favourable and significant impact on Romania's economic growth, with the increase in outward FDI having a higher impact. Commonly, the studied literature has a gap in that some studies only looked at the influence of outward FDI on economic growth in developed countries (Lee, 2010;Herzer, 2010); others only looked at developing ones (Chen and Zulkifli, 2012;Wong, 2013;Al-Shawaf and Almsafir, 2016;Basar and Özkilbaç, 2016;Ameer et al, 2017;Lee and Sermcheep, 2017;Chen, 2018;Ahmed and Ibrahim, 2019;Mohanthy and Sethi, 2019;Amin et al, 2020;Obobisa et al, 2021). However, studies evaluating the impact of outward FDI on economic growth in ASEAN is scarce.…”

Does higher income lead to more renewable energy consumption? Evidence from emerging-Asian countries

“…In recent years, FGLS has been used in many different contexts (see for instance, Refs. [ [64] , [65] , [66] , [67] , [68] , [69] ]).…”

Do Governance and Chinese OFDI Influence Differentially Economic Growth Across African Regions and Income Groups?

“…In the same vein, Donou-Adonsou & Lim (2018) investigated the effect of China's FDI on economic growth in African countries and revealed that China's FDI contributes to the increase in income per capita and welfare in Africa, especially in Francophone countries. Obobisa et al (2021) explored the nexus between China's outward foreign direct (OFDI), and the economic growth of 24 Sub-Saharan African nations from 1999 to 2018. The results of the feasible generalized least squares (FGLS) method disclosed that Chinese OFDI positively affected economic growth in low-middle and low-income African countries.…”