Foreign Direct Investments in Africa: Are Chinese investors different?

Abstract

In light of the upsurge in Chinese investments in Africa since Deng’s “Go Global” policy, we study whether the location choices of greenfield investors in Africa differ between Chinese and non-Chinese firms. We focus on risk- and information-related factors, i.e., investment protection provided by investment agreements and country-of-origin, industry, and internal agglomeration. We argue that Chinese firms enjoy ownership advantages that reduce their concern for risk. Our results show that Chinese firms are less sensitive to risk-mitigating factors compared to firms from advanced and other emerging economies. A lower reliance on internal agglomeration emerges as their distinctive trait in internationalization. We attribute this result to the systemic engagement of the Chinese government, which goes beyond state ownership and reduces the “liability of foreignness”. Chinese firms also appear more market-seeking and manufacturing-oriented, aggressively pursuing knowledge spillovers. Contrary to common perceptions, they do not seem distinctively resource-seeking or to pursue unstable countries.