The Impact of China, the EU, and the US on Africa through the Lens of Output Growth and FDI

Abstract

This study uses a vector of FDI-weighted real gross domestic product (GDP) growth rates as proxy for the output growth of China, the European Union (EU), and the United States (US). Using a two-stage least squares estimator over a sample of 42 sub-Saharan African countries for the period 2003–2012, our findings reveal that only the EU’s output spillovers have a significant impact on sub-Saharan Africa’s growth: a 1% increase (decrease) in the EU’s output growth can lead to a 0.02% increase (decrease) in sub-Saharan Africa’s real GDP per capita. The results obtained from the panel threshold regression analysis indicate that this linkage is not conditional on the availability of natural resources, unlike the output spillovers from the US and China, which bear a positive impact only in countries with resource rents of at least 24.3% and 24.1%, respectively. These are mostly oil-abundant countries, implying that China’s motive for natural resources in Africa is not different from that of the US. While the resource rents threshold level of 24.3% can serve as the benchmark for natural resource management policies to benefit from both China and the US output spillovers, a diversified FDI is also encouraged to minimize the risk associated with the resource growth paradigm.