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How does South-South FDI affect host economies? Evidence from China-Africa in 2003–2018

Foreign direct investment (FDI) from emerging markets to developing countries has increased significantly for recent decades. Such the South-South FDI tends to behave differently from the North-South FDI. The rise of China's FDI (C-FDI) in Africa has generated considerable controversy. While th...

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Bibliographic Details
Published in:International review of economics & finance 2021-09, Vol.75, p.690-703
Main Author: Zhang, Kevin H.
Format: Article
Language:English
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Summary:Foreign direct investment (FDI) from emerging markets to developing countries has increased significantly for recent decades. Such the South-South FDI tends to behave differently from the North-South FDI. The rise of China's FDI (C-FDI) in Africa has generated considerable controversy. While the popular opinion in Africa about C-FDI is positive, the Western reaction often is highly negative. How does C-FDI affect Africa's economies? Do C-FDI and the North-FDI have different impacts on Africa? This paper studies the issues by using the cross-country panel data in 2003–2018. We find that benefits from C-FDI to African economies are greater than those from the North FDI, and that the promoting effects of C-FDI concentrate on host-country's exports and industrialization. Uniquely the large Chinese investment in Africa's infrastructure not only contributes overall economic growth, but also enhance host-country's absorptive capacity in attracting and utilizing foreign capital.
ISSN:1059-0560
1873-8036
DOI:10.1016/j.iref.2021.04.015