Chinese investment and corruption in Africa

Abstract

ABSTRACT Chinese investment in Africa has rapidly expanded in recent years and garnered significant attention. There has been considerable concern that this investment will increase corruption in African states. However, there has been little academic scrutiny or examination of these claims. This paper proposes and tests the theory that the effect of FDI on corruption is dependent on the source country, specifically proposing and testing the hypothesis that Chinese FDI has a more detrimental effect on corruption than FDI from developed economies. By analyzing a random effects model with pooled cross-sectional, time-series data on corruption and foreign direct investment from 52 African countries from 2002 to 2012 I show that, contrary to the theoretical prediction, investment from Chinese sources does not have a significantly different effect on corruption than foreign investment from developed countries. Though Chinese investors are less deterred by high levels of corruption, their investment in more corrupt countries does not increase overall corruption levels.