Africa-China investment and growth link

Abstract

Purpose

This paper aims to investigate China–Africa Investment link, using over two decades of FDI’s data. During the specified periods, African economic growth path has been predominantly upward trending, despite multiple external threats. This impressive growth was partly because of the growth of FDI stock across the region. This study explores the various sources of FDI to Africa, mainly China’s FDI’s and how they influence African macroeconomic indicators, i.e. unemployment, export and import activities.

Design/methodology/approach

Pesaran autoregressive distributive lag (ARDL) is used as a framework to test the short-run and long-run relationship of indicators. Granger causality test checked the causality between growth and macroeconomic indicators.

Findings

The link between China’s FDI and African economic growth reported a negative/declining effect in both short and long run. In the long run, the effect of world FDI on growth was significant but not the in the short run. However, US FDI to Africa, China Export and Import from Africa reported an insignificant effect on growth. There was no evidence of Okun’s law, as a decrease in Africa unemployment does not increase growth. Overall, China’s FDI’s inflows to Africa are allocated to capital-intensive activities which has less labor employability. The Granger causality test reported a uni-directional link between growth and all series, except for human capital which experienced no link at all in all directions. Despite the issue of socio-infrastructure militating against growth in the region, African economy is likely to perform better, if more FDI’s are channeled into labor-intensive activities, because it has a reductive effect on unemployment.

Research limitations/implications

The research considered point annual FDI data but not accumulated stock and is a macro-based study, i.e. regional economy.

Practical implications

This paper bridged the literature gap in African investment performance by providing an empirical justification in understanding the inflow of FDI, especially China. This is a useful guard in policy design and implementations in the attraction of the right type of investment, so as to reduce unemployment and promote growth.

Originality/value

The authors confirm that this study has not been published elsewhere and is not under consideration in whole or in part by another journal.

Citation

Koomson-Abekah, I. and Nwaba, E.C. (2018), "Africa-China investment and growth link", Journal of Chinese Economic and Foreign Trade Studies, Vol. 11 No. 2, pp. 132-150. https://doi.org/10.1108/JCEFTS-11-2017-0034