Abstract

This study investigates the determinants of Chinese outward foreign direct investment (OFDI) in Africa. The study covers 37 African countries over a period of six years from 2005 to 2010. The study used a fixed effects model and differenced GMM for empirical estimations. Using the Stock of Chinese investment in Africa, the study found that Chinese investment in Africa is not primarily focused on natural resource seeking. This result is robust even after we isolate oil as a distinct product for resource seeking. The results suggest that Chinese investment is attracted by absolute market size in host countries. The Chinese preferentially seek out larger markets within Africa. However, the study found no evidence that the Chinese are attracted by the purchasing power of the host nations. It was also found that past market growth does not influence Chinese investment decision in Africa. Better infrastructure is found to be essential, precisely telecommunications infrastructure. Chinese investment is found not to be deterred by institutional risk factors in Africa, given that most of their investment is state owned enterprises. This distinctive feature about the Chinese sets them apart from western foreign direct investment which is pre-conditioned on institutional factors such as corruption and accountability. In this regard, Chinese OFDI can be considered as an alternative to conventional FDI. There is also no feedback mechanism between poor institutions and natural resources, suggesting that the Chinese are not natural resource seeking in poor institutional countries.

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School	: School of Law, Economics and Government
Issued Date	: 2015

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