Abstract
The rise of China’s outward foreign direct investment (OFDI) in Africa has promoted the continent’s economic growth but generated controversy in the West. What drives Chinese investment in the continent with abundant natural resources but poor institutions/governance? While the topic is important, studies on the issue in the literature have been limited. This paper attempts to close the gap by testing hypotheses of the role of resources and institutions with panel data in 2003–2013. Estimates suggest that the Chinese investment is not biased toward resource-rich and institution-poor countries but similar to Western investment, and China’s OFDI is largely profit-driven, just like investors from other countries. Institutional supports from the Chinese government, however, seems to be important to China’s OFDI in Africa.
Highlights
China’s outward foreign direct investment (OFDI) in Africa has generate controversy in the West, both academic and policy circles
The objective of this study is to investigate the role of resource-based location advantages and institution-based advantages in growing China’s OFDI
The paper is motivated by the following considerations: (a) Chinese investment in Africa is important to African economic growth and such investment grows rapidly; (b) two popular myths in the West about China’s OFDI in Africa seem to be misleading: China came to Africa just for extracting natural resources and Chinese investment is skewed to the African countries with poor institution quality; (c) the studies on the resource-institution-FDI linkage in the Africa-China context been limited
Summary
China’s outward foreign direct investment (OFDI) in Africa has generate controversy in the West, both academic and policy circles. The first concern stems largely from the sharp rise of Chinese OFDI in Africa in such a short period of time. Chinese investment in Africa increased rapidly over 2003–2018, OFDI flows from $0.07 billion to $5.39 billion, and OFDI stock from $0.49 billion to $46.10 billion [4]. These numbers, amount to only 5% of total foreign direct investment (FDI) stock into the continent by the end of 2018, and merely 2.9% of total China’s OFDI stock [5]. No doubt China’s investment is growing rapidly, but it still is relatively small
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