The Causal Relationship Between China-Africa Trade, China OFDI, and Economic Growth of African Countries

Abstract

Recently, China has emerged as the largest trading partner and a significant source of investment in the African continent. Although there is consent on the increasing importance of China and Africa’s economic partnership, there are many controversies on how it affects African countries. Debates on China in Africa have, however, relied on grandiloquence rather than empirical studies. This study explores the causal link between China-Africa trade, China’s outward foreign direct (OFDI), and economic growth of 24 Sub-Saharan Africa countries from 1999 to 2018. The aggregated panel is classified into upper-middle-income, low-middle income, and low-income Sub-Saharan African countries. In the long run, key findings from the feasible generalized least squares (FGLS) estimator unveiled that; (i) China-Africa trade negatively contributes to economic growth among all panels. (ii) China’s OFDI improves economic growth in the low middle and low-income African countries whereas a significant negative liaison is evidenced in the upper-middle-income African countries. (iii) Labor force have a negative impact on economic growth whiles gross capital formation is evidenced to positively impact economic growth at all the panels. The Dumitrescu and Hurlin Granger causality unveiled a one-sided causal link from China-Africa trade to economic growth at all panels. The study proposes policy recommendations based on the results.