Making It Rain? Comparing the Determinants of Chinese and Western FDI Flows to Africa
| Published date | 01 September 2021 |
| Author | David Landry |
| Date | 01 September 2021 |
| DOI | http://doi.org/10.1111/1758-5899.12996 |
Making It Rain? Comparing the Determinants
of Chinese and Western FDI Flows to Africa
David Landry
Duke Kunshan University, and
Duke University
Abstract
This paper tests whether Chinese FDI disproportionately flows to poorly governed African countries, compared to those of the
West. It also explores whether UN voting alignment between home and host countries, development loans from the former to
the latter, and host countries’market size, natural resource wealth, and per capita income impact Chinese and Western FDI
flows differently. It finds that governance quality among African countries plays a positive role in predicting their FDI inflows –
from both Western countries and China. The only governance indicator that has a significantly lower impact on Chinese FDI
than that of the West is corruption controls, and only when South Africa is excluded from the models. Even then, however,
the relationship between corruption controls and Chinese FDI flows is positive in absolute terms. Beyond governance, this
paper finds that UN voting alignment and development loans have a significantly larger impact on Chinese FDI than that of
the West and that the opposite is true with regard to market size and per capita income.
Policy Implications
•This paper’sfindings suggest that good governance impacts western investors activities in Africa, but only insofar as it
relates to their bottom line. If they care about ethical behavior –or wish to appear to do so –they should avoid directly
or indirectly participating in human rights abuses or authoritarian policies.
•Western governments should craft policies to –at a minimum –prevent their firms from contributing to or profiting from
human rights abuses or authoritarian policies.
•Beijing should enforce the Eight Amendment to the Criminal Law, which would underscore the seriousness of its drive to
uproot corruption both domestically and internationally and counter the popular narrative that ‘corruption is China’s
friend’.
•Given the positive link between good governance among African countries and their FDI inflows –from both China and
the West –African governments that want to attract FDI should prioritize the good governance agenda.
1.What do we not know about Chinese FDI, and
what does this paper answer?
In recent decades, China has risen to prominence in the
global economy with breakneck speed. For example, its
foreign direct investment (FDI) outflows have increased
more than 250-fold since 1990 (World Bank, 2017). This
came as Western investors, pushed by new policies imple-
mented in their own countries, began to pay increasing
attention to the quality of governance in developing
countries. Much of the conventional thinking on the mat-
ter views Chinese investors as either indifferent to gover-
nance issues or disproportionately attracted to poorly
governed countries. Headlines like ‘Corruption Is China’s
Friend in Its Quest to Dominate Africa’(The National Inter-
est) are common. Despite these widespread notions, little
is known about the drivers of Chinese foreign direct
investment. While this is partly due to a dearth of data
on Chinese FDI, the academic research on this question
remains severely limited.
This paper helps fill the gap in the research on the deter-
minants of Chinese investment in Africa. It explores the
impact of African countries’governance quality on their FDI
inflows to explicitly test the narrative that Chinese firms –
compared to their Western counterparts –disproportionately
invest in African countries that suffer from poor governance
outcomes. It also explores whether African countries’market
size, natural resource wealth, and per capita income impact
Chinese and Western FDI differently. Finally, it tests whether
the investment patterns of Chinese and Western firms in
Africa are impacted differently by the political ties between
their own governments and those of the countries where
they might invest, as well as the development loans pro-
vided from the former to the latter.
This paper differentiates itself from the existing literature
on the determinants of Chinese FDI in important ways.
Much of the existing analysis on Chinese investment implic-
itly compares it to that of Western countries, but this paper
is the first to present models built to make the comparison
explicit. The models presented in this paper compare
©2021 University of Durham and John Wiley & Sons, Ltd.Global Policy (2021) 12:4 doi: 10.1111/1758-5899.12996
Global Policy Volume 12 . Issue 4 . September 2021
468
Research Article
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