Impacts of Chinese Investment on Economic Growth in Sub-Sahara Africa (2007-2017)

Abstract

Foreign direct investment has taken a central position in promoting economic growth in the developing world and has been anticipated by different economic scholars to be playing a key role in accelerating growth in Sub-Sahara Africa countries. Over the past two decades, Chinese foreign direct investment in Sub-Sahara Africa has increased and Chinese present in the continent has brought optimism for future progress in economic and transformation. It is against this background that CFDI has appeared increasingly attractive to Sub-Sahara Africa countries facing declining domestic investment and higher costs of foreign borrowing. The governments of Sub-Sahara Africa, therefore, has been putting up incentives to ensure that foreign corporations are attracted to the country in an effort to increase the investments to the country and increase the level of economic growth.

The objective of this study was to determine the impacts Chinese foreign direct investment on economic growth in Sub-Sahara Africa and observing at the contribution of Chinese Foreign Direct Investment flows in improving the export supply of the countries' post-liberalization period.
The study is grounded on FDI flow data from China to individual countries in SSA over the period of 2007 to 2017 on 14 SSA countries. The time frame for this analysis is 11 years period for each country, based on the availability of data. Including all countries in SSA would have been beneficial for the study but the rest of the SSA countries were not considered for the analysis because we want to balance data, uniformity, and availability of data during the required period of time.

The study employed secondary data from different sources mainly accessed from the Chinese national bureau of statistics, MOFCOM, World Bank’s, World Development Indicators (WDI) database and World Bank African Development Indicator database as well as other sources like United Nations Commodity Trade (UN Comtrade) database, United Nations Commission on Trade and Development (UNCTAD) database and from World Economic Outlook database (WEO).

After controlling for other determinants of growth, the findings so far indicate that Chinese Foreign Direct Investment (CFDI) flow to Sub-Sahara Africa has a general positive and significant, which has a huge influence on economic growth. The results are in line with both the studies of Zhang (2001), Carkovic and Levine, (2002) and Borensztein et al. (1998) it seems plausible to argue that it is a certainty that Chinese FDI alone has a positive impact on growth. Chinese Investments have increased collective resource inflows into the host countries; this has/will improved capacity utilization, increased outputs and generated employment opportunities.

The significance of private CFDI is that such investments are slightly risk-free to the SSA countries and bring with it the advantages of advanced technology, management practices, and assured markets. Based on the results achieved, we present the main conclusions and respective policy recommendations which, if addressed, will stimulate domestic investment in short and long runs, since the investors’ decisions are influenced to large extend by those similar factors. Our objective two is to elaborate and determine the contribution of CFDI flows into SSA countries in increasing the export supply of the countries post-trade liberalization era. Here we tried to see the effect of CFDI inflows on the increase in the export supply of SSA countries from the perspectives of the countries' characteristics in the post-trade liberalization period.