Chinese FDI to Africa: What is the Nexus with foreign economic cooperation?

Abstract

China, once a major recipient of foreign direct investment (FDI), has recently become one of the main 'emerging' investors, especially in developing countries. Chinese Outward Foreign Direct Investment (OFDI) plays a very prominent role in economic interaction with many African countries. This paper empirically investigates the determinants of Chinese OFDI versus 41 African countries over the period 1998-2007. The analysis is novel because it provides empirical support to the existing, so far purely anecdotic, evidence describing Chinese FDI to Africa as driven by natural resources endowments and market potential. The econometric analysis highlights strong interrelationships between Chinese FDI and economic cooperation, which make standard models of investments unfit when assessing the role of China in Africa. It also suggests some new lines of research, exploiting the strong links between these different sources of financing.