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Abstract
China has rapidly emerged as on the worlds largest investors abroad. There is vibrant
debate as to the waning importance of the west as a result of Chinas aggressive global
outward foreign investment (OFDI) strategy. Africa has been an important focus of
Chinas OFDI primarily for natural resources to fuel and sustain its minimum required
growth rate of 7%. In addition, Africa has seen rapid economic growth over the past 5
years and in the case of Ethiopia, sustained double digit growth. This paper aims at
determining the motives behind Chinas increasingly active presence on the continent
and the relationship between natural resources and the weak institutions in Africa
from the strategic seeking perspective of Chinese state owned companies
internationalization. It has been identified that the majority of FDI stock to Africa is
channelled through State owned companies (SOEs) which is why they are the emphasis
of this research. Concomitantly, it must be highlighted that the Chinese Political economy
is major determinant of Chinese OFDI to Africa and therefore must be analysed in further
detail. The existing literature focuses on standard ODFI behaviour that was uncovered
primarily from the study of advanced industrialised multinationals. This paper takes into
account and highlights the differences in Chinese ODFI behaviour from existing studies
and discusses the ability of the ownership structure in China to transform competitive
disadvantages into advantages by entering African countries with weak institutions and
in many instances political instability. However, the risk associated with Chinese
investment in countries with weak institutions and political instability may have negative
impact on Chinese economic growth and development of Africa. This work attempts to
assess the motivations, costs and benefits of the Sino/African strategy.
Keywords:
China
OFDI
Natural Resources
Weak Institutions
SOEs
Ownership Structure
Strategy
Introduction
Research Aim and Objectives
This paper attempts to identify the main determinants of Chinese Outward
Foreign Direct (OFDI) investment to Sub-Saharan Africa (SSA). These
determinants should better guide the analysis of Chinese OFDI strategy to the
region (SSA) and the relationship between countries with weak
institutions/political instability and large natural resource endowments. This
study is done to advise both business and policy makers relevant to Chinese and
African industry about the pros and cons of China specific internationalization to
the continent.
Contributions
The investment strategy of Chinese state owned firms towards Africa is of
significant importance and is often understated in academic work. In addition,
the political economy approach from a rapidly evolving variation of Chinese
capitalism is different from the prevailing literature on firm
internationalization in many ways. The political economy of China has major
bearings on strategy and because its importance is often marginalized this
paper seeks to bolster this perspective while adding on to the traditional
theories.
Africa is largely unexplored but yet the most resource rich land mass in the
world. China with the worlds largest population of 1.3 billion has a seemingly
insatiable appetite for natural resources. Historically, the stereotypical
thought process behind Chinese investments to Africa has been limited to
natural resource seeking behaviour (Buckley 2007). Recently, scholars have
challenged this view ( Klauer & Trebilocock, 2011 Braughtigam 2009, Keenan
2008 ) and rightfully so. Infrastructure projects have become the fastest
growing funded projects on the continent. In 2013 CMEC won USD 690 billion
worth of contracts to build a national power supply system in Nigeria and ZTE
and Huawei are building fixed and wireless communication networks
throughout the continent (FDI markets 2015). Infrastructure development in
Africa creates a better environment for the Chinese to do long term business
and also raises the standard of living of Africans. Examinations of the trends
of Chinese OFDI into Africa has brought about alternate views on the
changing focus of natural resources extraction/exploitation to a more nuanced
argument surrounding seeking of soft power motivated by the Chinese
political economy and its institutional framework. Many studies have revealed
the Chinese governments role in expediting the internationalization of SOEs
through various policies and economic reform mechanisms. It has also been
said by (xxxxx) that the Chinese SOEs are an instrument of accomplishing
Chinese foreign policy objectives that are very closely related to overall
economic goals. An example of the future importance Africa will play in global
economics was illustrated this summer when President Obama travelled
throughout the continent spending most time in Kenya and Ethiopia to
reinforce US diplomatic ties. Ironically, however, whilst in Kenya the very
building he spoke in was a gift from the Chinese government to Kenya of USD
20 million. This stadium diplomacy as many economist call it is prevalent
throughout Africa. Point of reference is the new USD 200 million African Union
building constructed by the Chinese government as a gift and symbol of long
term partnership and goodwill. Today, China is the main investor in South
Africa (Evenett, 2009: Scissors 2010). In 2014 trade flows between China and
Africa totalled USD 120 billion and as a result diplomatic links have
strengthened and the Chinese seem to have a better rapport with African
institutions and governments than their western counterparts. Furthermore,
Japan, South Korea and Taiwan are forcing China to step up their game in the
region based on their increasing competitive presence. Michael Porter
Literature Review
Economic data shows that Chinas outward foreign direct investment is
heavily biased towards tax havens in the treasure islands such as Cayman
and mostly distributed throughout Southeast Asian countries. In addition,
most FDI flow is transacted by state owned enterprises with government
sanctioned monopoly status. The implications of state ownership and bank
dominated capital allocations are that although Chinas post-recession FDI
continues to surge, the method and determinants of Chinese OFDI may not be
as economically sensible. However, political motivations and the perception
of grandeur may replace profit maximization and lead to long term financial
failures.
Determinants of FDI
The literature on the Determinants of Chinese FDI is grounded in the
Dunnings OLI theory that speaks to firm specific advantages that can be
transferred to overseas markets to enhance profitability of firms (Dunning
1976). Dunnings eclectic paradigm refers to the firms resource seeking,
market seeking and efficiency seeking behaviour as a major motivation for
internationalization. The latecomer perspective (Rodriguez 2007) is an
extension of the OLI theory and refers to the need for developing countries to
intensify international trade and commerce as a means to catch up with the
already developed west that has established multinationals and wide geo
political presence. The fight to be the world hegemony is deeply rooted in
Chinas history and implemented as well in its consecutive five year plans as
an underlying force behind outward foreign direct investment (Cui and Jang
2012). This perspective supports the institutional theory position that explains
the relationship between the state and its agents as determinants of
internationalization. This perspective is relevant to the research in this paper
that aims to assess the strategic approach of Chinese SOE internationalization
to Africa and because of the dynamics related to state ownership must be
viewed from an institutional perspective.
The internationalization strategy of private companies from the west, share
some similarities to the Chinese with regards to motivating factors. However,
Political Risk
Chinese investments in Africa have shown to be driven by low institutional
controls in less developed countries such as Sudan, Nigeria and Angola.
Traditional literature dictates that firms invest in locations with low political
risk. However, in the Chinese case it establishes close relationships with often
autocratic governments that share characteristics with its communist history
and come to agreements far easier than westerners have been able to
through negotiations. It has been argued, that China based on its own
institutional inferiorities (rule of law etc.) are better able to identify and
communicate with Africans and therefore achieve a competitive advantage
over their western counterparts as a result. In addition, the reduction of
bureaucratic processes and regulations facilitates faster execution of business
transactions which helps provide another advantage relative to more
advanced countries that are ironically hampered by compliance issues that
stem from stronger more developed institutions. It would appear that the
African population who are desperately in need of investments to fuel growth
and infrastructure favour the Chinese approach that is not only faster but also
a more realistic model to pattern. Most emerging markets are aware of the
china miracle and have seen the sudden ascension based on the socialist
mercantilism, it seems that the less the corporate governance when dealing
with emerging markets is the more attractive the deals to the host countries.
In many instances, Chinese companies have outbid western counterparts in
the region. The state bank funding does augment their competitive
advantage as well because financing costs are arguably cheaper and the
limitation of capital is a non- issue. The Uppsala school determines the pace
at which multinationals internationalise and the magnitude of the
commitment. However, the Chinese SOE surpasses the traditional
expectations from this standpoint. In the case of Africa, there is intensified
internationalisation often times irrespective of the limited market knowledge
prior and lower than average levels of traditional documented due diligence.
Therefore, one must assess the degree of impact the institutional actors have
on providing a buffer or safety net that allows seemingly risky investor
behaviour to remain sustainable. It is evident that the ownership framework
of the Chinese SOEs have a heavy hand in determining the level of OFDI and
its location choice.
At the start of the Chinese Open door Policy foreign direct investments were
limited to appointed national champions within specific industries and were
all state owned. However, in 1999 Dengs go global policy attempted to
enhance Chinese firms competitiveness by allowing private firms alongside
SOEs to invest abroad and gain international market experience and
knowledge (Voss 2011). Although the company allowed private firms to
venture abroad the institutional framework remained very much under state
control. To date, many private companies retain the state as major
shareholders in order to operate and are significantly guided by the state in
the creation of internationalisation strategies. In fact, In Africa we find many
POEs located there to complement the plans of already established SOEs. As
a result, Chinese OFDI cannot be understood without reference to the Chinese
government and its policies (Buckley et al 2008; Gugler&Fetscherin, 2010).
For instance, the One China Policy also plays a major role on the
internationalization behaviour of China. Wherever, Taiwan attempts to
internationalize, China attempts to outbid them with long term goals of
bringing all of China under one single administrative umbrella similar to what
has happened in the case of Hong Kong.
METHODOLOGY:
This part of the thesis will describe the methodologies used in conducting
the research. The research approach selected for this study is the deductive
approach. This approach comprises of observation, data collection then reflecting
upon the Chinese OFDI trends to China and the firms behaviour (Mainly of the
SOEs) to extrapolate and analyse the observations upon the theories already
existing. The hypotheses are also developed and are tested using the least
squares standard and ordinary analyses of regression. This is done in accordance
with the prior literature as discussed.
3.1. Research Methodology
The term Methodology is a very wide term as it not only limits to the
procedures that are intended for the utilization in the collection of data. It is a
systematic and theoretical analysis of the procedures which are used in the
study. It comprises of the principles and its theoretical analysis and the body of
methods which are linked with the topic chosen. As Pring (2014) highlighted, the
methodology of the research has a big effect on the research results as well as
the researchs expected framework. This thesis is based on the quantitative data
which have been critically incorporated into the research to find out the
determinants of Chinese FDI to Africa and the impact on Institutional weaknesses
(corruption, political instability etc.) on choice of entry.
3.2. Dependent Variable
The dependent variable selected in this thesis is the total amount of OFDI
of Chinese firms in the period of 2003-2013. The collection of data was from the
bulletin of statistics of the Chinese OFDI from 2003-2013, which MOFCOM of
China published, the Republic of China National Bureau of Statistics and SAFE
which is in accordance with the research done previously by Buckley et al, 2007).
3.3. Independent Variables
In order for our hypotheses to be tested, we have followed prior studies
and included three variables which are captured using the motives established
for FDI, which are; resource seeking, market seeking and influence of the
institutions. We have utilized the GDP approach to test the market seeking
Chinese FDI hypothesis which is done by calculating the potential of market of
the host country with the help of its GDP. This information was gathered from the
Indicator of World Bank Development for the period of 2003-2013 using the three
years mean. We calculated the natural resources of the host countries
endowments with the cost ratio and the exports of metal between the same
periods, and calculating the mean again. Also, in order to test our hypothesis of
the factors of politics and the FDI of China impact on Africa we used the indices
of Corruption and the law rule rankings which is collected for both countries from
the World Bank Development website. Finally, in order to broaden the natural
resource theory seeking behaviour we have tested the efficiency of the
hypothesis seeking by the Chinese OFDI and costs of labour is also collected
from the website of World Bank Development.
3.4. Justification of the Chosen Research Approach
The selected approach of research is the quantitative approach and it is
the best suitable approach for this studio as it supports in gathering huge
information which is relevant and can be then organized and analysed by the
researcher. The selected approach will help to reveal broad sorts of questions
linked with the study by observation, data collection then reflecting upon the
Chinese OFDI trends to China and the firms behaviour (Mainly of the SOEs) to
extrapolate and analyse the observations upon the theories already existing. On
the basis of these facts, for the present research, the writer has opted to select
the quantitative method for collection of data and secondary information. Since,
this approach comprises of lot of theories and literature that is why it uses
secondary data. This will be utilized to write the review of literature and the
sources are gathered from peer reviewed articles, journals, books and websites.
3.5. The research Philosophy
The present study focuses on identifying the determinants of Chinese FDI
to Africa and the impact on Institutional weaknesses (corruption, political
instability etc.) on choice of entry. For this, the researcher had the option for
selecting the three philosophies of research which are namely positivism,
Interpretivism and realism (Pring, 2014). By considering the objectives and goals
of the present research, the selected philosophy for the research to conduct the
study will be through Interpretivism. This is selected due to the fact that it will
provide an accurate and complete results of the research.
Interpretivism is the research which allows the study for researchers to
interpret the elements of study by integrating the human interest in the study
(Creswell, 2009). This means that the researchers who are following this
approach thinks that there is an access to reality which is socially constructed
and this philosophy is based on a criticism which is positive. Interpretivism is
associated with the position of philosophy of idealism and is used to merge
together the approaches which are diverse like phenomenology, hermeneutics
and constructionism etc. (Neelankavil, 2015). These approaches neglects the
objectivists view which resides independently inside the consciousness.
Moreover, this approach focuses on the various procedures which meaningfully
reflects towards the various problems and its aspects (Neelankavil, 2015).
3.6. The Research Approach
Fredman, Hanna and Rodriguez (2003), said that the set of mind through
which the researcher is able to deduce the outcome and conclusion from the
study is known as the research approach. It is a crucial for understanding the
collection of data, types of data the procedures of analysis. The researchers can
choose from both the deductive and inductive approach. Both of these
approaches have different effect on the outcome of the study. In this thesis, the
deductive approach is selected. A deductive is the approach which comprises of
hypothesis development which is based on the already existing theory. When the
hypothesis is determined, the strategy of the research is to test and design the
hypothesis. (Fredman, Hanna and Rodriguez, 2003).
3.9. Conclusion
This portion of the thesis emphasized on the research philosophy, data
types, collection procedures, approach of research, the techniques used for the
analysis of data.
Yet all of these coefficients which are four in total are not significant
and shows that these factors dont play a role which is big in the
description within the African countries growth variation. When talking
about the measures of trade, we can see the impacts of the economic
growth which matters. While the Africas total China exports coefficient is
positive but is not significant, the imports total from China show a
negative and a significant impact on the rate of growths. The trade
relations are analysed at the same time with ROW. The impacts are
contrary somehow to those which have relations with China. The estimate
of exports again shows a positive sign and the imports in order to show
the impact of the GDP lagged variable per capita on the per capital GDP
growth, we have to rectify the coefficient estimated by obtaining 0.132
which is done by subtracting 1. In the fixed-impacts regression
correspondence, Choi & Youn (2013), figure out that the coefficients which
is -0.230 is equal to it. The magnitude difference is due likely to the fact
that their research comprises of countries that are developing to around
85 in number comprising of countries in Non-Africa also.
There is a negative sign as shown in the coefficient, but the
significance of the statistics have been altered. The exports total of Africa
to the ROW are crucial whereas the imports total from the ROW are not
significant which shows that the ROW exports might lead to the growth of
economy in Africa. Till that time, these outcomes indicates that they
should be treated bit as causations but as correlations.
In the 3rd column of Table 1, we added the variables which controls
the distortions of the macroeconomist factors as well as for the intensity
conflicts occurrence. The estimates of these measures which are two
enter with the sign that is negative in our specification, but there are not
significant statistically. Regarding regression most notably, the result of
the other estimates especially those of the ones with principle interest,
the variables are not impacted by adding the rate of inflation and the
battle death numbers although four points are loss on further
observations. Figuring out the potential impact of growth on these
evidence related to the measures of trade, the next differentiation is
between non-resource and resource trade as seen in 4rth column. The
four total variables of trade are replaced by export/imports variables
which are disaggregated for non-resource and resource trade. Only one of
the coefficients of eight is significant statistically which determines the
economic growth correlation that is imports of non-resource from China
which show a sign that is negative. The correlation which is negative is
between the imports total from the growth of economy across Africa and
from China, as seen in 3rd and 2nd column. We can see that these seems to
rise in non-resource segments imports. As shown the non-resource goods
dominance in imports total from China (which in 2012 accounts for 97%),
this outcome is surprising hardly. It points still to the impact of potential
displacement of the firms in Africa by other competitors of China. The
findings from 3rd and 2nd column though shows a positive and significant
impact on the total exports to ROW. The results which are disaggregated
for the non-resource and resource exports are not significant to the ROW.
The growth estimates and the trade terms is significant and shows a
positive sign at the 5% level or better which shows that the exporters of
the natural resources in Africa have taken benefit from the world market
which is high in prices for these products of export. The result is in
accordance with the outcomes of Cui & Jiang (2012) who identified that
the Chinas demand has led to the considerable increase in the raw
materials prices, specifically for the metals and oil from Africa, which then
leads to the incline in the trading terms. This outcome is aided by
Drogendijk & Blomkvist (2013), who are showed the impact which is
positive for China on different prices of commodity and varieties. At the
same time, the enhancements in trading terms of the countries in Africa
could also be related to the rise from the prices of lower imports, for
instance, from the low cost manufactured goods in China, as these
imports of the good increases dramatically over the past 15 years. What
most matters is the correlation changes which is positive in the trading
terms and the growth of economy in the countries of Africa.
In order to analyse deeper the trading terms impact, the interaction
terms are computed which means that the changes in the trading terms is
multiplied with all the variables of trade respectively. This is done to
examine the impacts which are non-linear. While most of the terms
interaction, whether at a disaggregated or aggregated level are not
dramatic, there is a stand out of these two exceptions. The term
interactions with the Chinas total exports and the China exports of
resources, which are highly significant and positive respectively at one
percent level of significance as seen in column 6 th and 5th. This result is
strong comprising of all the terms of respective interactions at the same
time and show that the natural resources exporting to China is linked
indeed with growth level which is higher. But this outcome shows up either
through alterations directly in trading terms or through interactions
indirectly. Next stage, we copy all the specifications of the GMM regression
model system using it in order to address the concerns of endogenous
(and the inclusion of biasness due to the dependent variable lagging). In
these lagged variable which is dependent, these regressions, population
growth, investment, inflation and all the four export and import total
variables, all the export and import non-resource variables, as well as the
aid and the FDI from the ROW are regarded as endogenous.
In order to limit the endogenous variables number (and thus the
instruments number used), we changes the set in trading terms, political
situations, wars, and all the export variables natural resources as
exogenous. It is assumed that the countries of Africa are too small to have
an effect on the prices of the world market (talking in terms of trade) and
that the wars and political instability mainly have a huge impact on the
growth of economy but not vice versa. Yet changing both variable status
from endogenous to exogenous impacts hardly on the outcome. The
exports of the natural resources are the major driven by the fact that
whether the country has or not the natural resource endowment. Causality
reverse is less of a problem in this instance. Again, the major outcomes
are not impacted by all the variables of trade declaration as endogenous.
The FDI to African and the aid of China is traded as exogenous. As
indicated by Broad man (2015), the FDI of China to Africa is not impacted
by GDP as soon as we exclude South Africa from out sample. So, the aid
and FDI from China predominately is concentrated in the countries of
Africa where there is an endowment of large resources which is
exogenous.
The results show an impact which is negative for the imports from
China non-resource are at odds with those as determined by Hong & Sun
(2007). They figure out the imports from China positive impacts on the
growth of African countries. This can be explained partly by the Hong &
Sun (2007) facts that does not differentiate between non-resource and
resource goods. At the same time, the time period which is long (19912010 instead of the period of 1995-2008) and used a methodology which
is different. On the other hand, the impacts of displacement are more in
accordance with those as reported by Lacharite (2013). They concentrated
on the impact of displacement for the exports on African counties in the
third markets but did not studies the impacts in the domestic market for
African countries. For the impact of growth on the foreign investment, the
positive impacts figured out by Ramasamy et al (2012). Again, this can be
described by the various employed methodologies. Since, they uses the
growth model of Solow methods of accounting to examine the
effects on African economic growth on Chinese FDI, the are likely
more to analyse and figure out the evidence for the growth in the
short run for the impact on Chinese investment. Also, the
methodologies used by them accounts for the effect of even changes
which are small relatively in FDI and its effect on the growth of economy.
In order to analyse the robustness of the results obtained, we run
different regressions additionally. In the methodology terms, the results
present were preferred for the effects that are fixed for estimator only. In
fact, the validity of the GMM system has been tested as an estimator in
various regressions additionally. Using various model specifications,
various structural lags, taking different periods of time or averages
annually, the statistics test never make certain the specification which is
proper in all the 6 model at the similar time. This is partly because of the
relatively small number of countries selected in the sample as well as
there was a shorter period of time. While the principle results of the
variables of interest are not impacted much, the effects of the model
which is fixed seems to be stronger than the estimator of GMM (Lacharite,
2013). Still, the impacts which are fixed does not control from the
indigeneity potential of some of the variables which are explanatory. But
since the estimations of GMM supported the basic results from the trade
variables which are various, are not convinced still that the problem of
indigeneity are not a major issue and that the findings of this results can
be regarded as having impacts which are causal as well.
In the following, the presentation is restricted of the robustness and
extensions checks to the two save space dimensions: different samples of
country having different averages period. The initiation is done with the
variations sample as seen in 3rd Table. First, the sample is extended and
six African countries in the North are added (as seen in Column 1 and 2).
This gives more examining on the results as they are sensitive to the
sample size that is larger and comprises of all the countries in Africa
basically for which the data is selected. Through the countries in North
Africa differs from those below in the Sahara, they have huge investment
and trade links with China as well (Ramasamy et al, 2012).
In 3rd and 4rth column, the initial sub-Saharan sample of Africa again
but excluding all the four islands of Africa. It can be argued that the
islands which are small like Mauritius, Cape Verde, Comoros differs from
the African Sahara mainland. Arguably, Madagascar may be applied to this
averages of four years (column 1 and 2) and the averages of three years
as seen in 3rd and 4rth column. While this method allows for the
exploitation of a more variation in the data over time, we may not be able
to control fully the impacts of the business cycle.
Similar to the samples which are different, we again figured out a
clear support for the major results. Significance and sign levels of all the
variables controlled are not impacted much. This is also applicable to the
principle of interest variables. The impacts of displacements is still figured
out for the co-efficient which are estimated for the imports of nonresources from China which are significant and are negative at 5% level of
significance or better. Also, the imports total from China are linked
negatively with that of growth of economy (Lacharite, 2013). Yet
the exports total in contract to the rest of the world are no longer
correlated positively with that of economic growth. In contrast to the
section previously, the inflows of FDI from China is found out to be positive
and significant at level of 10% significance when adding the trade
variables which are disaggregated and uses the averages of four year (as
seen in column 2). Yet the outcome is not so strong if more aggregated
variables of trade are used or 3 years average period if used.
The Chinese FDI, trade and aid in Africa and the impact of this on
the growth in economy is investigated thoroughly in this research. In
contrary to the other studies empirically, it is analysed that there are
three major channels of the activities in China at the same time. The
findings empirically can be summed up as follows. The FDI flows from
China generally and the rest of the globe as well as the cooperation of
economy and FDI from other countries seems to play no main role in the
countries like Africa and on their development of economy. The AfricanSino trade however shows an impact. The results show that the
imports of African from China, especially the non-resource
imports have an impact which is negative on the economic growth
in Africa (Ramasamy et al, 2012). This findings is strong to suing various
period averages and samples as well as the approach of an instrumental
variable. Although not strong in all the specification, the exports of Africa
to the globe (excluding China) are linked positively with the African
growth. Finally, it is revealed that the economies of Africa which
have natural resources benefitted from the rising demand of
China for materials raw because both have positive changes in
trading terms and enhancing exports to China for natural
resources when using the terms of interaction.
In regards to the implications of the policy, these outputs
demonstrated clearly that the challenges and opportunities which are
faced by these counties in Africa when dealing with new trading partners
like China. The exports of Africa of the natural resources are an obvious
instance for both these situations. These opportunities arise because of
the total higher earnings of exports of the rich resource countries in Africa.
These funds which are generated additionally from resource rich
African countries and through trading needs to be spent well, or
instance on the purposes of development like education or
infrastructural development. However, due to political instability
export from the firms in Africa in other products which are labourintensive, partly by the diversification of exports or by the value chain
being moved up. So far, the proof is not in favour of the countries from
Africa as other countries and China especially has blocked the segment of
market (Rygg, 2012).
4.3. Buckley Equation
In regards to FDI (Foreign Direct Investment) many of the countries
that are developing have taken advantage greatly especially China. The
results are insignificant from out regressions which concerns FDI from both
the rest of the world and China which may point out to an FDI
environment which is insufficient in the countries in Africa rather that an
FDI displace not playing the role for the economic growth in Africa. So far,
the Africas most foreign investment has been for FDI resource seeking
with few relations with other sectors. The government of Africa should
focus thus on attracting the vertical (efficiency-seeking) FDI by
developing for the private sector a better environment. This could
be achieved by giving a more transparent and simpler environment
regulation, upgradation of infrastructure, building and enhancing the
levels of education and also offering incentive on investment like
exemptions on tax to the development of Zones for Special economy that
have worked well in other countries that are developing especially China
(Rygg, 2012).
Y=x+bx1 + b1x1+. +b4x4+e (Buckley et al, 2009)
The government of Africa have to make sure that they do harness
the positive impacts potentially for the investment from foreign countries.
So far, the investment in China is based often on the isolation from the
rest of the domestic economy. Enhancing the associations between
international companies and the local economy is thus essential to
enhance the impact of growth for foreign investment. This could enhance
the spill overs of technology and enhance it for the local companies.
Synonymous to trade, the governments of Africa should target sectors
which are specific that are essential for the development of economy and
then direct the investment of foreign countries towards these segments.
This could enhance the capacity of both local and productive investment,
boost the employment levels locally and foster the African companys
integration into the world economy (Lacharite, 2013).
Essentially, a
regional coherent policy of integration and framework would be important
highly to both the enhancement in the flows of FDI and improve the
impacts of spill over.
Although, a significant impact on the growth of the Chinese aid to
African could not be figured out, it is nevertheless an essential part of the
policy of China Africa and its deal of package to Africa. The economic
cooperation of China projects in Africa are growing steadily,
particularly in the infrastructure filed, but it is the impact on the
growth on African economy which may still require some time to
emerge. Although the Western donors have been widely criticized
for its practices aid in the countries in Africa (especially those
which are poor and have weak governance and human rights). So,
institutions which are poor. To shorten that, the outward FDI from
China is attractive to those countries which are a merger of the
poor institutions and having larger natural resources.
of the fuel term is not dramatic. However, so again this variable is only
significant when there is a linkage with institutions. A robustness test
range showed the impact of this to be the one with resilience. A negative
and significant interaction impacts is there even if there is a control which
is additional for the variables if it is included like interest rates, exchange
rates, economic growth, per capita GDP, infrastructural development and
educational levels. Additionally, the outcome is obtained due to the
robustness of the inclusion of other variables of institution, like all the
governance variable for WBI, the Freedom House rights of politics
average, the index of civil liberties and their press index freedom and the
democracy index of Polity IV. And when the results are analysed, it came
to be similar. So, adding regional dummies, a cultural index of proximity to
China, a common border with China dummy, and a land locked country
dummy. None of these institutional variables of other control proved to be
significant.
The utilization of other proximities attempts for the infrastructure
outcome in the issues of multi collinearity. The inclusion of an
International Transparency Perceptions of Control Index lead to the issues
of Multi collinearity. The outcome from the sample that is complete thus
advices that there are two major determinants set for the Chinese FDI
outward; natural resources; size of market merged with institutions that
are poor. Dividing the sample into non OECD and OECD countries shows
that these determinants set are linked with various kind of countries
hosted. The 3rd stage of Table 5 shows the outcomes when rerunning the
major estimation of the countries of OECD only which are in the sample of
this research amounted to 25. The only major variable which showed
significance is GDP which advices that the FDI of China into
countries that are rich is driven because of the size of market. The
4rth column of the table shows the outcomes of the non-OECD countries,
and shows that the determinants of the FDI from China, GDP is not a
significant factor but that the China distance deters the investment into
these countries, so in the full sample this doesnt came up to be
significant sample. More interestingly the focus given, the institutions and
the natural resources appear to be the FDI determinants to the countries
of non-OECD mainly countries. In fact, both the term of natural resource
and the linkage term are significant for the countries of OECD.
The coefficient is positive for the resources and it is suggested that
the FDI of China is attractive to the countries which possess natural
resources. There is a linkage which is negative and impact on the indices
that the degree if that attraction relies on the institutions, and that the
resources attraction is worse and greater with that of the environment of
the institution. The impact of natural resources on FDI from China is also
significant economically. For a country whose score of institution is -1.5
which is the score of Angola, that coefficient of the resource that are
natural is 97,11 approximately which means that an incline in the exports
of natural resource in 10% of GDP points bring an investment which is
additional for China of almost USD 10 million.
4.5. Discussion and Findings
To sum this up, the OFDI of China is more attractive to the markets
that are large, and the countries having poor instructions and more
natural resources. The former is linked to the markets that is advance,
whereas the latter is the OECD countries case. The results of the thesis
indicates that GDP is consistent with the equation of Buckely et al. (2009).
However, it did not figure out the impact which is unconditional for the
Chinese FDI institutions as showed by Buckley et al (2009) equation nor
are the resources which are natural are insignificant as to their research.
Instead, the results of our thesis advices us that the impact of
institutions is related inherently to the natural resources;
institutions that are weak and the more is the OFDI of China it is
attracted by natural resources. The different in the outcome from the
previous issues of multi collinearity (Buckley et al, 2009).
The results of the thesis also lend help to the determinants of the
FDI of China from that of other countries. The estimations rerunning using
FDI inflows total acted as a variable that is dependent. There is no direct
significant impact on FDI and natural resources, not it is the linkage
between institutions and natural resources significant. This also hold true
for the non OECD countries hosted as a sub sample. In comparison, the
Chinese FDI, total FDI is attracted more to institutions that are good
(Buckley et al, 2009).
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