The Impact of China's Fdi and Fdi From Other Sources on Growth in Sub-Sahara Africa Through Export Upgrading

Abstract

This paper seeks to analyse how FDI from China, US, EU, and the rest of Asia transmit to growth in sub-Sahara Africa through export upgrading for the period (2003-2012). Terms-of-trade is utilized as a proxy for export upgrading. We develop a theoretical argument to show that countries with worsening (less than 1%) terms-of-trade are associated with poor industrialization as a result they can hardly improve quality and quantity of their products for export market, vis-à-vis. In this respect, this study contributes to existing literature in two ways. First, we investigate if technology embodied in FDI from the above-mentioned sources can enhance quantity and quality improvements of export commodities in sub-Sahara Africa. Second, we account for industrial policy heterogeneity of sub-Sahara African countries in order to determine the threshold level at which FDI-induced export upgrading can contribute positively to growth. Using both 2SLS and PTR models, our results reveal that FDI from China and the rest of Asia does not bear significant impact on growth in sub-Sahara Africa through export upgrading. However, PTR analysis demonstrates that FDI from US and EU seem to have a significant negative impact only below a threshold of 1.08%. As the terms-of-trade improves beyond 1.08%, the estimated coefficients of both FDI from US and EU turn positive, albeit insignificant. We conclude that sub-Sahara African countries are far yet to reach a threshold at which FDI-induced export upgrading can contribute positively to growth.