The effect of Chinese foreign direct investment on Africa's industrialization process

Eugene Misa Darko and Kangning Xu

International Journal of Emerging Markets, 2022, vol. 19, issue 10, 3139-3159

Abstract: Purpose - This study empirically investigates the long-run and interactive effect of Chinese foreign direct investment (CFDI) on Africa's industrialization process. Design/methodology/approach - The authors employed industry and manufacturing value-added (% GDP) as the dependent variables and applied the two-step GMM and panel-corrected standard errors' (PCSE) techniques involving a panel of 49 African countries from 2003 to 2020. Findings - The industry value-added (% GDP) results show that the presence of CFDI propels industrial productivity by contributing to value-addition in the short and long run. Moreover, the study shows that the magnitude of the CFDI effect on industrialization is pronounced in the short-run when it is associated with labor and natural resources. This result reveals efficiency-seeking behavior of CFDI and the CFDI-Africa industrialization nexus is not primarily resource-driven. More importantly, the authors found human capital, electricity and political stability, as primary factors that magnify CFDI's effect on industrialization in the short and long run. Originality/value - This study is the first to use macro-level data to empirically investigate and find the significant effect of CFDI on Africa's industrialization in the long run. More importantly, the authors investigated channels through which CFDI magnifies industrialization in Africa in the short and long run.

Keywords: Chinese FDI; Africa; Industrialization; Interaction terms; GMM (search for similar items in EconPapers)
Date: 2022
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Persistent link: https://EconPapers.repec.org/RePEc:eme:ijoemp:ijoem-02-2022-0327

DOI: 10.1108/IJOEM-02-2022-0327

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