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 investment (OFDI) in the region’s production capacity. Though China’s investment prospects in Africa remain vast and diversified, the continent constitutes a small share of the stock of Chinese global OFDI. There is a dearth of research on the relationship between the level of African investment facilitation and the scale of China’s investments in the continent. The paper provides a comprehensive measurement of investment facilitation in 19 African countries spanning the 2010 to 2017 period using the entropy weight method. The expanded investment gravity model analyzes the impact of African investment facilitation on China’s OFDI 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 OFDI. From a disaggregated investment facilitation perspective, the application of information technology is found to be significant for aiding China’s investments in Africa.

Keywords

• outward foreign direct investment
• investment facilitation
• entropy weight method
• gravity model
• china
• africa