Does China Transfer Productivity Enhancing Technology to Sub‐Saharan Africa? Evidence from Manufacturing Firms*

Abstract

Abstract: This paper considers whether trade between China and sub‐Saharan Africa results in productivity‐enhancing technology transfers to sub‐Saharan African manufacturing firms. As trade flows between countries potentially results in interactions that lead to technological improvements in the production of goods and services, we parameterize the level of total factor productivity for African manufacturing firms as a function of foreign direct investment flow, and for the country in which it operates, trade openness with China, and its interaction with foreign direct investment. With micro‐level data on manufacturing firms in five sub‐Saharan African countries, we estimate the parameters of firm‐level production functions between 1992 and 2004. Our parameter estimates reveal that across the firms and countries in our sample, there is no relationship between productivity‐enhancing foreign direct investment and trade with China. In addition, increasing trade openness with China has no effect on the growth rate of total factor productivity. To the extent that total factor productivity and its growth is a crucial determinant of economic growth and living standards in the long run, our results suggest that increasing trade openness with China is not a long‐run source of higher living standards for sub‐Saharan Africa.