Investing for Resources? Comparison of Chinese Outward Foreign Direct Investment in Africa with the rest of the World

Abstract

The increase in Chinese outward foreign direct investment (OFDI) in Africa over the last decade has met with concern and criticism, especially with respect to its resource-seeking motive. Though few studies have done so, this paper aims to evaluate the role of natural resources in Chinese OFDI in Africa with the aim of ascertaining whether this resource role in Africa is different for the rest of the world. This paper uses a different methodology and measure of natural resources: Employing an investment gravity model and Generalised Method of Moments (GMM), we estimated the effect of natural resources on Chinese OFDI in Africa. The study finds Chinese investment to be natural-resource seeking in both the African and non-African sample. Also both the foreign direct investment (FDI) source and host countries gross domestic product (GDP) are found to have a significant positive effect on Chinese OFDI in both study samples. The results also illustrate the importance of institutional and political factors in Chinese OFDI and suggest policies to boost Chinese OFDI in Africa.