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Confucius Institutes and FDI flows from China to Africa

Muhammad Akhtaruzzaman, Nathan Berg () and Donald Lien

China Economic Review, 2017, vol. 44, issue C, 241-252

Abstract: Is the establishment of new Confucius Institutes (CIs) in African countries motivated by resource seeking? We focus on uncovering new empirical evidence about the establishment of CIs, whether they are related to natural resources, and the extent to which the establishment of new CIs and Chinese foreign aid flows affect one another. Whereas Chinese aid flows do indeed appear to be empirically associated with African countries' natural resources, the evidence we report suggests that CIs are established based on a distinct set of motives. We find that CIs, Chinese foreign aid flows to Africa and natural resources have joint predictive power on the subsequent year's Chinese FDI outflows. CIs are not, however, positively associated with the subsequent year's aid flows. And aid flows are not positively associated with the subsequent year's expected number of CIs. We interpret this as evidence that CIs reflect an economically significant expression of Chinese soft power. The goals underlying the expression of this soft power are not subsumed by natural resource seeking and are not easily compressed to a single dimension. The data show that CIs and aid flows are not positive predictors of each other and are not subsumed (i.e., made to disappear) by the inclusion of controls for natural resources. Thus, the presence of a CI reveals independent, novel, and economically significant information about future trade flows that cannot be explained away by differences in resources or other control variables commonly found in empirical models of trade flows. The empirical evidence suggests that CIs are indeed an effective instrument for increasing China's soft power but that this soft power is not motivated solely (if at all) by resource seeking.

Keywords: FDI; Foreign aid; Natural resources; Culture and trade; Soft power; Hanban; China (search for similar items in EconPapers)
JEL-codes: F14 F53 F55 (search for similar items in EconPapers)
Date: 2017
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China Economic Review is currently edited by B.M. Fleisher, K. X. D. Huang, M.E. Lovely, Y. Wen, X. Zhang and X. Zhu

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