Chinese FDI and Economic Growth of Sub-Saharan African Countries: PIM Method and Quantile Regression in Panel Data

Fred Eka

doi:10.7176/jesd/12-14-02

Abstract

This article explores the impact of Chinese investment flows on the growth rate of 49 SSA countries over the period from 2003 to 2020. The estimation strategy consists of building the capital stock using the perpetual inventory method (PIM). The quantile estimator has the advantage of being robust in the case of outliers and / or scattered errors because it penalizes deviations less. We will apply the appropriate estimation strategy (Canay, 2011) in order to neutralize the econometric problem of "incident parameters". Our results confirm a positive impact of Chinese investments on GDP per capita in SSA, which remains limited. Keywords: Chinese FDI, GDP per capita, Sub-Saharan Africa, PIM method, Two-step estimator, Quantile Regression. JEL Classification : O4, F21, F43 DOI: 10.7176/JESD/12-14-02 Publication date: July 31 st 2021

Highlights

China is increasingly emancipating itself in SSA and their leaders need to maintain mutually beneficial economic relations in order to resume their development process
Outlook and Recommandations Our results show a positive difference between the estimates [1] and [2] despite the fact that there is a lack of data on Chinese FDI to SSA
We have econometrically verified by panel data, the effect of Chinese FDI on the growth rate of 49 SSA countries over the period from 2003 to 2018

Summary

Introduction

China is increasingly emancipating itself in SSA and their leaders need to maintain mutually beneficial economic relations in order to resume their development process. Which leads us to a major thought-provoking question Is it the contribution of Chinese investment flows to the growth rate of SSA countries?. The implementation of PIM requires information on (i) a time series of investment data, (ii) the existing rate of depreciation and (iii) the initial capital stock ( K0). If the economy of SSA countries is in its stable state, information on the current level of the growth It rate (g), the depreciation rate (δ) and the investment ( ) are sufficient to calculate the initial capital stock. Nehru and Dhareshwar (1993) propose an alternative procedure The latter regress the time series of investments in logarithmic form and use the adjusted value of the first period (which they do not specify in detail) to calculate the initial capital stock It would be wise to apply the appropriate estimation strategy in order to neutralize the econometric problem of "incident" parameters, the need to study the two-step quantile regression estimator on panel data (Canay, 2011)

Quantile panel regressions

Data and estimates

Findings

Conclusion