Foreign Direct Investment In Africa Research Articles

What Happens When Your Hand is in My Pocket: The Foreign Policy Effects of China’s Foreign Direct Investment in Africa

AbstractThis study utilizes social exchange theory to argue that a more complete picture of the effects of China’s FDI in Africa needs to include non-economic factors, especially institutional forces that incorporate macro political considerations. We propose that economic dependencies created by China’s FDI in Africa are reciprocated by votes in international organizations, and thus, we hypothesize and test that increasing China’s FDI in African nations leads to increased political alignment in international affairs with those African nations. The proposed relationship, however, will be weakened for African countries with stronger governance mechanisms. Using data for China’s FDI in African countries from 2001–2019, we find support for our hypotheses. We find that China’s economic engagement in Africa has resulted in increased political alignment on international issues evidenced by votes in United Nations organizations raising the possibility Africa’s most attractive resource may not be economic, but rather political. This, however, poses the question of whether votes are a ‘resource’ that can be traded for economic purposes.

Efekty spillover chińskich inwestycji zagranicznych w Angoli i Zambii

SPILLOVER EFFECT OF THE CHINESE FDI IN ANGOLA AND ZAMBIAIn recent years, Chinese foreign direct investment (FDI) in Africa has attracted interest from both academia and the wider political world. Some postulate that Chinese companies – unlike Western corporations – have greater potential to initiate and carry out the structural transformation of the continent. Some researchers even indicate that thanks to the inflow of Chinese FDI, Africa may become “the next factory of the world”. The aim of this article is to analyse external effects (also called spillover effects) related to Chinese FDI in Africa using the examples of Angola and Zambia. According to the current state of knowledge, spillover effects are the most desirable effects of FDI in the host country, because the related increase in the productivity of local enterprises is key to the occurrence of structural transformation in local economies. The subject of the analysis presented in this article are three aspects (determinants) of spillover effects: (i) the potential of Chinese FDI to generate spillover effects, (ii) the absorptive capacity of local companies and (iii) local institutional settings favouring the occurrence of spillover effects. The findings indicate that due to the existence of weak and few linkages between foreign investors and local firms, spillover effects occur rarely and are relatively small. They are also not sufficient to initiate the transfer of valuable knowledge and technology. The presented research results were based on over 150 in-depth interviews and two rounds of surveys conducted among Chinese investors, Angolan and Zambian companies and representatives of local authorities.

Impact of intellectual property rights on foreign direct investment in Africa

The study investigated the impact of intellectual property rights on foreign direct investment (FDI) in selected African countries (Burkina Faso, Ivory Coast, Nigeria, Cameroon, Mali, Kenya, Burundi, Central African Republic, Rwanda, Senegal, Zimbabwe, and Tanzania). The purpose of the study is to develop property rights policies that encourages FDI in African countries. How FDI is influenced by the combination of trade openness and intellectual property rights was also examined using the same data set and econometric methods such as the dynamic generalized method of moments (GMM), fixed effects, and pooled ordinary least squares (OLS). Panel data ranging from 2005 to 2019 were used for the purposes of this study. A 1% increase in intellectual property rights led to a 22.73% increase in FDI inflows under the dynamic GMM and a 45.55% increase in FDI inflows under the random effects. These results show that intellectual property rights significantly enhanced FDI under the random effects and dynamic GMM. FDI was insignificantly enhanced by intellectual property rights under the pooled OLS and fixed effects methods. A 1% increase in complementarity between intellectual property rights and trade openness (complementarity term) pushed up FDI inflows by 17.78% under the dynamic GMM, whilst a 1% increase in the complementarity term increased FDI inflows by 16.72% under the fixed effects. In other words, dynamic GMM and fixed effects approaches show that the complementarity component significantly improved FDI inflows. The paper recommends implementing the best property rights strategies to improve FDI inflows into African countries. AcknowledgmentThe author appreciates the moral support from the University of South Africa, his employer.

How would legal systems affect US and Chinese foreign direct investment in Africa? An exploration of the roles of origins, customary law, and legal integration

ABSTRACT As the first and second largest economies, the United States and China are among leading investors in Africa. Given their differences in economic systems and political institutions, a natural inquiry would be what drives both countries’ continuous investment in this continent. Previous scholars focused on macroeconomic, resources, and political factors. From our perspective, the legal system is deep-rooted and align with the lasing-interest character of FDI, which might unlock a promising space to understand the determinants of FDI in Africa. We proposed that legal systems would impact FDI through property protection, dispute settlement, and cross-border transactions cost reduction, which would take effect through general legal origins, customary law, and legal integration, respectively. Based on our sample containing 43 countries between 2007-19, we find that African’ legal heritage tends to play important roles in affecting U.S. and Chinese investors’ economic engagement with the continent.

Paving Their Own Road? Local Chinese and World Bank Aid and Foreign Direct Investment in Africa

Abstract China’s emergence as a major donor and economic partner to sub-Saharan Africa has prompted questions if the aims and impacts of China’s efforts in the region are driven by self-serving commercial motives. While there are strong reasons to think that the foreign aid may make a location more attractive to investment, generally, by improving the infrastructural, institutional, or human capital environment and/or by serving as a signal of a location’s risk, there is also reason to suspect that Chinese aid may be “paving the way” for investment by Chinese firms. To investigate, this paper uses spatial and temporal variations in localized, geo-referenced data to find a strong overall support that local aid boosts local foreign direct investment (FDI). However, we also find some evidence that Chinese aid boosts its own FDI compared to FDI from third-party countries; but this differential effect is also visible with the Chinese FDI’s response to the World Bank aid as well as in the relationship between both aid and FDI from the USA, suggesting that the Chinese FDI may simply be following any aid and that the relationship between its aid and FDI is not exceptional among bilateral donors.

Trends and Patterns of Korean Foreign Direct Investment in Africa

Trends and Patterns of Korean Foreign Direct Investment in Africa

A Comparative Analysis of the Determinants of Foreign Direct Investment: The Case of Top Ten Recipients of Foreign Direct Investment in Africa

Through mechanisms including knowledge transfer and productivity spillovers, foreign direct investment (FDI) is viewed as a critical driver of growth in developing economies. However, the majority of African nations require capital inflows, particularly foreign direct investment (FDI), as a result of insufficient capital accumulation. The capacity of African governments to deliver top-notch infrastructure and social services has been diminished as a result. However, there has not been any independent research on how FDI inflows have affected Africa’s top 10 nations between 1970 and 2021. Most studies on the subject overlooked the impact of institutional quality on FDI inflows and omitted pertinent indicators of infrastructure development. The purpose of this article is to present a comparative analysis of the factors influencing the top ten beneficiaries of FDI in Africa. The ARDL bound test was employed to confirm the co-integration of the variables over the long term. The major goal is to confirm the relationship between the short- and long-term determinants of foreign direct investment in the top ten African recipients. This estimation was performed based on the unique characteristics of each country to make comparisons and inferences easier. The results of the limit test demonstrated the existence of a long-term connection between the examined determinants. The study found that infrastructure gaps, poor domestic savings, and price inflation were some of the mitigating factors preventing FDI from entering these countries. Additionally, the study found poor governance, which may impede the growth of effective institutions and capital inflows. It is crucial that these nations undertake both fiscal and monetary policies in order to address these issues, draw in private investments that allow for significant economic activity, and boost their economies’ prosperity.

The Scale of a Country’s Economic Potential as a Factor in Investment Allocation. The Case of Small Island States in Africa

The choice of partner countries for potential investment projects constitutes an important issue in the development of Russian-African cooperation. The article aims to answer the question of whether the small island states in the region (Mauritius, Seychelles, Cape Verde, Sao Tome and Principe, Comoros, Guinea-Bissau) should be included in the list of investment priorities. To this end, the author undertakes an analysis at three levels: global, regional and the national (country) one. Accordingly, first, fundamental features of the global investment system are identified, in the light of the Fituni-Abramova theory of the world economy’s subsystemic dichotomy. Second, the author introduces the concept of «economic potential scale» and hypothesizes that it plays a more important role in the allocation of foreign direct investment in Africa than in other regions of the world. As the correlation analysis shows, the important role of economic potential scale is not only characteristic of Africa, but also of other regions except Europe. According to the author, this is due to the fact that in Europe the investment climate is more important, whereas in other regions, including Africa, natural resource potential and other indicators related to economic potential scale remain the important factor. Third and lastly, taking into account the global and regional patterns discussed above, the author considers the potential for inclusion of the African small island states in Russia’s list of investment priorities. For this purpose, the author proposes a typology of these countries based on the intensity of investment attraction: the «high-intensity – offshore», «high-intensity», and «low-intensity» types. The conclusion is that the countries belonging to the first two types can be considered among Russia’s priorities for investment in Africa. Despite their relatively small economic potential, they have a number of competitive advantages, including those associated with the ocean economy.

Constitutional instability and foreign direct investment in Africa

AbstractThis paper assesses the impact of constitutional changes on foreign direct investment (FDI) in 49 African countries during the period 1980–2020. The paper uses a dummy variable related to the year of the constitutional change and the number of changes during the study period to capture the frequency of constitutional changes. The results reveal that an increase in the frequency of constitutional changes negatively affects FDI. The negative relationship between constitutional change and FDI is consistent across different measures of constitutional change and FDI and is robust to alternative empirical approaches. These results suggest that frequent constitutional changes may create uncertainty and instability in the investment climate, which may discourage foreign investors from investing in these African countries. The study provides evidence for policymakers that a stable constitutional framework may attract FDI in African countries.

THE EFFECT OF SOCIAL PROGRESS ON FOREIGN DIRECT INVESTMENTS: A DYNAMIC PANEL DATA ANALYSIS FOR AFRICAN COUNTRIES

A strand in the empirical literature on development economics investigates the dependence of foreign direct investments on recipient countries' economic, institutional and structural characteristics. This paper builds upon this literature by examining the role of a country's social progress as a pull factor for inward foreign investments. It applies the dynamic panel data methodology to an unbalanced panel dataset from African countries for the 2011-2019 period. The findings suggest that social progress is a significant determinant of foreign direct investments in Africa, supporting a positive social progress-foreign direct investments nexus. For the dimensions of social progress, while access to basic needs and foundations of well-being are important factors, opportunity exhibits superior influence on foreign direct investments. Findings provide evidence for a policy that recognises the social progress in shaping a host country’s attractiveness to foreign investments.

Analysis of India’s Non-State-Owned Enterprise Investments in Africa: An Empirical Approach

This paper focuses on Indian foreign direct investment (FDI) flows to Africa for the period 2008 to 2018, amidst increasing state efforts to improve Indo- African economic ties. This study pioneers the segregation of investments led by state-owned enterprises (SOEs) from non-SOEs in an empirical analysis. The motivation is rooted in the scarcity of empirical evidence of Indian FDI in Africa, particularly by non-SOEs. The random effects model was applied on the panel data for 2008-18 to highlight the significant causative effect of country alliances, gross domestic product (GDP) and net overseas development assistance of host countries in attracting greater FDI from Indian enterprises. The effect of corruption levels remains less clear in a statistical sense. These results could inform the political and economic policies of African host countries that seek financial and technical support from India.

A Multi-Sectoral Analysis of Effects of Foreign Direct Investment on Nigeria’s Output Growth

This research work examined the Multi-Sectoral Analysis of effects of Foreign Direct Investment on Nigeria’s Output Growth ranging from 1990-2020, covering a period of 30 years. Foreign Direct Investment (FDI) is undoubtedly a key source of external capital to many emerging economies. Nigeria is one of the renowned destinations for FDI in Africa. Inflows of FDI in Nigeria are not significant when compared to some other developing countries. This research explores issues pertaining to sectoral allocation of FDI in the major sectors of the Nigerian economy. Technically, it focused on the effect of FDI on Nigeria’s sectoral output growth. Foreign Direct Investment Proxied as FDI is the explanatory variable while Interest Rate proxied as INTR and Exchange Rate as EXR are the control variables while Mining & Quarrying (MQGDP), Manufacturing & Processing (MPGDP), Agricultural Sector (AGGDP), Information & Communication (ICGDP) Output are the dependent variables. The central objective of this research work is to determine the effect of FDI inflows, on Mining & Quarrying (MQGDP), Manufacturing & Processing (MPGDP), Agricultural Sector (AGGDP), Information& Communication (ICGDP) Output and also Interest Rate and Exchange Rate as control Variables. It employed the use of secondary and time series data using statistical tool such as Auto Regressive Distributive Lag (ARDL), Augmented Dickey Fuller unit root to test for the stationarity of the Data, Johanson Co-integration to test for long-run equilibrium relationship that exist among the variables under study. The p.value of FDI on MQGDP, MPGDP, AGGDP, ICGDP are 0.3767, 0.5846, 0.3155, 0.8498and effect of INTR on MQGDP, MPGDP, AGGDP, ICGDP are 0.8015, 0.7097, 0.9200, 0.8426 and effect of EXR on MQGDP, MPGDP, AGGDP, ICGDP are 0.4172, 0.9330, 0.5513, 0.1755 respectively showing that none is significant. The result shows that FDI, INTR &EXR impacted positively on the output growth of MQGDP, AGGDP & ICGDP while, only FDI impacted positively on MPGDP with INTR & EXR exerting negative effect on it. Based on the findings, the study recommends amongst others that government should encourage the inflow of more FDI into the various sectors by creating an enabling environment and formulating strategic socio-economic policies that will enhance the ease of doing business in Nigeria and boost investor’s confidence.

The effect of population health on the inflows of foreign direct investment in Africa

Although a lot of studies exist on the drivers of Foreign Direct Investment (FDI) inflows, very little attention has been paid to the effect of population health, to the extent that, some countries may be willing to compromise their health and safety standards in order to attract FDI inflows. In this study, we provide empirical evidence of the effect of population health on net FDI inflows in Africa. The study employs data from 1997 to 2017 on a sample of 35 African countries. Life expectancy and death rate are used to proxy population health whiles the Instrumental Variable Fixed Effects (IVFE) and the system Generalised Method of Moments (GMM) regressions are used as the baseline and robustness empirical estimation techniques, respectively. The study finds life expectancy and death rate to have positive and negative significant effects on net FDI inflows respectively, irrespective of the estimation technique used. Our findings imply that, instead of lowering health and safety standards, enhancing population health (via for instance, improving access to quality healthcare, improved water and sanitation as well as vaccination against diseases among others) should rather be used as a strategy towards attaining higher net FDI inflows, especially into Africa.

Rethinking the Role of Foreign Direct Investment in Africa: A Factor Income Distribution Based Analysis

Rethinking the Role of Foreign Direct Investment in Africa: A Factor Income Distribution Based Analysis

Bayesian model averaging approach of the determinants of foreign direct investment in Africa

The possibility of misinforming policy direction is undoubtedly high when factors determining foreign direct investment (FDI) are haphazardly selected owing to the diverse nature of the underlying FDI theories, thus leading to model uncertainty. To resolve the econometric and policy concerns, this study re-investigates the determinants of FDI for 53 African economies for which comprehensive data are available using the Bayesian Model Averaging (BMA) technique over the period, 1984–2018. Interestingly, unlike the previously conducted studies on FDI determinants, variables such as gross fixed capital formation, trade openness, exchange rate, secondary school education, democratic regime type and mobile subscriptions per 100 people take preeminent positions over other explanatory variables for the continent. However, government consumption expenditure, inflation, GDP per capita, capital openness and credits to the private sectors constitute the major deterring factors of FDI into the continent. These variables altogether remain the substantive predictors of FDI into African continent out of the 23 explanatory variables used. Similarly, differences are observed in the determinants of FDI across the regions of the continent. Thus, assuming the general policy framework to region specific concerns may not be efficient policy menu to attracting foreign capital flows. In light of the preceding, understanding the salient African-wide determinants as well as each region's idiosyncratic details regarding the determinants hold a promising path to tread in attracting foreign direct investment.

Foreign Direct Investments in Africa: Are Chinese investors different?

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.

Investment Climate and Foreign Direct Investment in Africa: The Role of Ease of Doing Business

This paper explores the relationship between the ease of doing business, as one of the investment climate indicators, and foreign direct investment (FDI) inflows in Africa. It uses instrumental variable estimation and the control function approach to correct for possible endogeneity between FDI and the ease of doing business as well as economic growth. The study uncovers evidence that the ease of doing business plays a positive role in attracting FDI. The findings support African countries’ attempts to invest in improving their business environment to attract favorable FDI.

The end of tax incentives in mining? Tax policy and mining foreign direct investment in Africa

AbstractAfrican countries generally cut corporate income tax (CIT) rates in the hopes of attracting foreign direct investment (FDI), whereas the effectiveness of tax rate reductions in attracting extractive industries FDI is controversial. This paper estimates the impact of the statutory CIT rate, as applied to mining companies, on FDI inflows to the gold and silver sectors of African economies. The estimation results indicate that the impact of the mining CIT rate on the host country's gold and silver FDI inflows is negative, but not statistically significant, at the conventional levels of significance. These results suggest that cuts in the CIT rate applied to mining companies will not necessarily attract FDI to gold and silver projects. Moreover, we find a strategic complementarity in gold and silver FDI inflows between countries, suggesting that an increase in the host country's gold and silver FDI inflows may stimulate FDI to gold and silver projects in neighbouring countries. Furthermore, the results show that infrastructure, government stability and gold and silver reserves positively affect gold and silver FDI inflows. The main findings of the paper suggest that, instead of granting corporate tax incentives, governments may consider improving the quality of socio‐economic infrastructure, the availability of geological information and promoting political and economic stability for attracting mining investments.

Forgotten territories: the uneven geography of FDI in Africa and the case studies of Burundi, Central African Republic, Comoros, the Gambia, Guinea-Bissau and São Tomé and Príncipe

ABSTRACT Considering the uneven geography of foreign direct investment in Africa, this article examines political, demographic and infrastructural factors that have led six countries – Burundi, Central African Republic, Comoros, the Gambia, Guinea Bissau and São Tomé and Príncipe – to be the least attractive territories to the external capital. This paper investigates the extent to which political stability, qualification of labor, potential consumer market, regional integration, and infrastructure play a central role in attracting investments. It also debates Geography’s role in investigating African countries’ particularities to avoid common generalizations, which are still disseminated by Afro-Optimism and Afro-Pessimist perspectives.

Does Chinese FDI in Africa inspire support for a china model of development?

Chinese Foreign Direct Investment (FDI) to Africa is quickly becoming a centerpiece of China’s approach to promoting development overseas. To this point, however, little is known about the extent to which those investment projects inspire popular support for a China model of development in Africa, or whether Chinese FDI invites skepticism and concern among community members in the region. In this study, we investigate the effects of proximity to Chinese FDI on local perceptions of China’s approach to development in Africa. We geolocate 200 Chinese investment projects, and we spatially connect those data to responses from over 35,000 georeferenced survey respondents across 21 countries. By comparing responses from those living near operational Chinese FDI projects to responses from those living near eventual locations of Chinese investment but where no project yet exists at the time of the survey, we determine the proximity effects of Chinese FDI on views of the China model of development while accounting for the potential nonrandom location of those investment projects. The findings indicate that, on average, living near Chinese FDI projects reduces support for a China model of development. Furthermore, specific types of FDI projects evoke distinct evaluations of China’s presence. Specifically, respondents living near manufacturing projects view infrastructure development as a positive contribution from China, whereas those living near resource-related projects express concerns about Chinese land grabs and job threats. Those living near service projects hold more mixed views. The results suggest that people living in close proximity to Chinese FDI projects in Africa are swayed less by global development narratives than by how those projects shape their everyday lives and experiences.