China’s Investments in Africa: Does Investment Facilitation in Africa Matter?

Abstract

China, through its open policy, has enhanced its cooperation with Africa through outward foreign direct investments in the region’s production capacity. The paper constructs a composite investment facilitation index (and five sub-indices reflecting different types of investment facilitation) for 19 African countries spanning the 2010 to 2017 period using the entropy weight method. It then employs the investment gravity model to analyze the impact of African investment facilitation on China’s investments in the Continent. Investment facilitation levels of most African countries are found to be relatively low, except for South Africa, and Morocco. The empirical results support a significant and positive impact of investment facilitation in Africa on China’s direct investments in the former. From a disaggregated investment facilitation perspective, the application of information technology, financial services efficiency and quality of institutions are found to be significant for aiding China’s investments in Africa.