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The Contribution of Chinese FDI to Africa's Pre Crisis Growth Surge

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  • Aaron Weisbrod
  • John Whalley

Abstract

In the 3 years before the 2008 Financial Crisis, GDP growth in sub Saharan Africa (averaged over individual economies) was around 6%, or 2 percentage points above mean growth rates for the preceding 10 years. This period also coincided with significant Chinese FDI flows into these countries, accounting for up to 10% of total inward FDI flows for certain countries in these years. We use growth accounting methods to assess what portion of this elevated growth can be attributed to Chinese inward FDI. We follow Solow (1957), Dennison (1962), and others and use data for individual economies between 1990 and 2008 to calculate Solow residuals for these years for individual economies. We use capital stock data, workforce, and factor share data by country. Capital stock data is unavailable directly, and so we use perpetual inventory methods to construct the data. Factor shares come from UN National Accounts data. We then run counterfactual growth accounting experiments for thirteen Sub-Saharan African countries excluding Chinese FDI inflows for 2005-2007 and also 2003-2009. Our individual results vary by year and country, but there are several year/country combinations where Chinese FDI contributed to an additional one half of a percentage point or above to GDP growth. These results suggest that a significant, even if in some cases small, portion of the elevated growth in sub Saharan Africa in the three years before the Financial Crisis and also in the two years afterwards (2008-2009) can be attributed to Chinese inward investment.

Suggested Citation

  • Aaron Weisbrod & John Whalley, 2011. "The Contribution of Chinese FDI to Africa's Pre Crisis Growth Surge," NBER Working Papers 17544, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:17544
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    Cited by:

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    2. Akhtaruzzaman, Muhammad & Berg, Nathan & Lien, Donald, 2017. "Confucius Institutes and FDI flows from China to Africa," China Economic Review, Elsevier, vol. 44(C), pages 241-252.
    3. Alexis Habiyaremye, 2013. "‘Angola‐mode’ Trade Deals and the Awakening of African Lion Economies," African Development Review, African Development Bank, vol. 25(4), pages 636-647, December.
    4. Anindya Biswas & Biswajit Mandal & Nitesh Saha, 2014. "Foreign Capital Inflow and Real Exchange Rate Appreciation in Developing Economies: Theory and Empirical Evidence," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 14(03n04), pages 453-465, October.
    5. Zhang, Kevin H., 2021. "How does South-South FDI affect host economies? Evidence from China-Africa in 2003–2018," International Review of Economics & Finance, Elsevier, vol. 75(C), pages 690-703.
    6. Miao Miao & Qiaoqi Lang & Dinkneh Gebre Borojo & Jiang Yushi & Xiaoyun Zhang, 2020. "The Impacts of Chinese FDI and China–Africa Trade on Economic Growth of African Countries: The Role of Institutional Quality," Economies, MDPI, vol. 8(3), pages 1-20, June.
    7. Bartels, Frank L. & Napolitano, Francesco & Tissi, Nicola E., 2014. "FDI in Sub-Saharan Africa: A longitudinal perspective on location-specific factors (2003–2010)," International Business Review, Elsevier, vol. 23(3), pages 516-529.
    8. Whalley John & Weisbrod Aaron, 2012. "The Contribution of Chinese FDI to Africa's Pre Crisis Growth Surge," Global Economy Journal, De Gruyter, vol. 12(4), pages 1-28, December.
    9. Elena Kopnova & Lilia Rodionova, 2017. "An Analysis of the Economic Determinants of Food Security in North Africa," HSE Working papers WP BRP 166/EC/2017, National Research University Higher School of Economics.
    10. McKenzie, Rex A, 2015. "Monetary transmission in Africa: a review of official sources," Economics Discussion Papers 2015-7, School of Economics, Kingston University London.
    11. Vandana Chandra & Justin Yifu Lin & Yan Wang, 2013. "Leading Dragon Phenomenon: New Opportunities for Catch-up in Low-Income Countries," Asian Development Review, MIT Press, vol. 30(1), pages 52-84, March.
    12. Jai S. Mah, 2015. "Export Expansion and Economic Growth in Tanzania," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 15(1), pages 173-185, March.
    13. Yifang Wan & Yunxian Chen, 2022. "China’s Foreign Aid and Sustainable Growth of Recipient Countries: Mechanism and Evaluation," Sustainability, MDPI, vol. 14(17), pages 1-17, August.
    14. Matthias Busse & Ceren Erdogan & Henning Mühlen, 2016. "China's Impact on Africa – The Role of Trade, FDI and Aid," Kyklos, Wiley Blackwell, vol. 69(2), pages 228-262, May.
    15. Samson Edo, 2018. "Private capital inflows and stock market interface in sub-Saharan Africa," International Review of Economics, Springer;Happiness Economics and Interpersonal Relations (HEIRS), vol. 65(4), pages 507-538, December.
    16. Bräutigam, Deborah & Tang, Xiaoyang, 2014. "“Going Global in Groups”: Structural Transformation and China’s Special Economic Zones Overseas," World Development, Elsevier, vol. 63(C), pages 78-91.
    17. Engidaw Sisay Negash & Wenjie Zhu & Yangyang Lu & Zhikai Wang, 2020. "Does Chinese Inward Foreign Direct Investment Improve the Productivity of Domestic Firms? Horizontal Linkages and Absorptive Capacities: Firm-Level Evidence from Ethiopia," Sustainability, MDPI, vol. 12(7), pages 1-23, April.
    18. World Bank Group, 2015. "Global Economic Prospects, June 2015," World Bank Publications - Books, The World Bank Group, number 21999, November.
    19. Rania S Miniesy & John D Adams, 2016. "Local employment additionality impacts of Chinese overseas foreign direct investment in selected African economies," Local Economy, London South Bank University, vol. 31(6), pages 665-689, September.
    20. Sargis Karavardanyan, 2022. "Short-Term Harm, Long-Term Prosperity? Democracy, Corruption and Foreign Direct Investments in Sino-African Economic Relations," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(3), pages 417-486, September.
    21. Emma Serwaa Obobisa & Haibo Chen & Emmanuel Caesar Ayamba & Claudia Nyarko Mensah, 2021. "The Causal Relationship Between China-Africa Trade, China OFDI, and Economic Growth of African Countries," SAGE Open, , vol. 11(4), pages 21582440211, December.

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    More about this item

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • O55 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Africa

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