Foreign direct investment among developing markets and its technological impact on host: Evidence from spatial analysis of Chinese investment in Africa

Abstract

This paper investigates the technological impact of foreign direct investment (FDI) among developing markets on the host economy, as the distinctive features of FDI from developing countries may induce stronger technology-enhancing effect on the host developing nations than that of FDI from developed economies. Adopting the context of Chinese FDI in a set of 24 African nations during 2006–2017, we first separate structural change from total factor productivity (TFP) to obtain the technological progress series. We then account for spatial dependence in technological progress across countries by employing various spatial models; of these, the Spatial Durbin Model is found to best describe our data. We find that, first, both structural change and technological progress have contributed positively to TFP in Africa. Thus, the latter captures the pure technological change more accurately than TFP does. Second, Chinese FDI in Africa has had a positive and significant effect on the region's technological progress, whilst non-Chinese FDI (mainly from developed countries) has not, substantiating our expectation of stronger technological benefit for developing economies when FDI is from other developing nations. Finally, there had been negative spatial technological dependence across countries, implying a competitive rather than cooperative relationship among African nations.