AN EXAMINATION OF THE RELATIONSHIP BETWEEN CHINA’S FOREIGN DIRECT INVESTMENT AND INDUSTRIAL PERFORMANCE IN AFRICA

Abstract

This paper examined the relationship between Chinese outward foreign direct investment (FDI) and the industrial sector’s performance represented by the industrial sector’s contribution to the gross domestic product for a sample of 49 African countries between 2003 and 2019. The study also examined the moderating effects of Chinese FDI on Africa’s industrial performance. We employed panel fixed-effects and panel-corrected standard errors models to control for country heterogeneities and serial correlation in the disturbance terms, usually present in panel data and may bias the estimates. The results showed that Chinese FDI has moderating effects on industrial performance through industrial employment and natural resources. We also found a significant positive relationship between contemporaneous Chinese FDI and industrial performance, suggesting that Chinese FDI of a given year positively affects the same year’s industrial performance. The study further revealed lingering effects of Chinese FDI on industrial performance, implying the favorable impact of Chinese FDI on industrial performance in a given year may not be immediate. Policymakers are advised to improve the absorptive capacities of industrial workers and direct Chinese FDI towards transforming natural resources into industrial goods.