Chinese Investment in the African continent: An analysis of the determinants of Chinese FDI in Africa

- 1 January 2020

Trade topics: Regional Integration, Trade Policy, Trade Modelling

The “Chinafrica” relationship has recently been the focus of several international political discourses, whereby the motives behind recent breathtakingly fast upsurge of Chinese FDI in the African continent is being questioned. Hence, the purpose of this study is to analyse why China has been exponentially investing into Africa and it examines the determinants of Chinese FDI in Africa. The conceptual model is based upon the UNCTAD framework of FDI and the investigation is carried out using a balanced panel data from a sample of 25 African countries over the period 2005-2015. To account for the existence of dynamism and endogeneity in the FDI modelling, a Panel Vector Error Correction Model (PVECM) is employed accordingly and this framework also allows for both short-run and long-run analysis. The findings show that market size, resource availability, infrastructure and the Belt and Road Initiative (BRI) were all positively significant in explain the Chinese investment in Africa in the long run, whereby the BRI has the most substantial impact. Moreover, in the long run, it was found that less control of corruption was significant in attracting more Chinese FDI, while there exists no relationship between trade openness and FDI. The VECM results also demonstrate that FDI is dynamic in nature, implying that previous year’s Chinese FDI affects the current year’s Chinese investment in Africa.

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