Economic Integration And Spillovers Of China's OFDI In Sub-Saharan Africa:An Empirical Analysis

The primary purpose of this thesis was devoted to analyzing China-Africa economic integration and its prospects on the possible direct and indirect spillover benefits from Chinese Outward Foreign Direct Investment(OFDI)both an aggregate and industry-level analysis and demonstrate the applicability of the Belt and Road Initiative(BRI)in Africa's perspective.With all the drivers of globalization,the launching of China's market-oriented economic integration reforms,opening-up policy,and the pathbreaking schemes have successfully transformed the country from a low-income economy into an upper-middle-income,and the hub of the world's manufacturing nation.China has by far now received the largest foreign direct investment(FDI)in the world.Equally remarkable,Chinese Outward(OFDI)in Africa has increased substantially since the country introduced the “going global” strategy in early2000 and played a significant role in the development of both home and overseas spillovers.The recent report suggested that China has become Africa's leading trading,loan providing,and investment partner,after OFDI outflows surged by 44 %,nearly 10 % of Gross Domestic Product(GDP),and more than36 % of its inflows.The rise of China's OFDI into Africa particularly in Sub-Saharan Africa(SSA)has been shown an upward trend profoundly,surged from USD 75 million in the year 2000 to USD 47.4billion in the year 2017 and is expected to accelerate over USD 100 billion by the end of 2020.A great majority of previous studies concluded that Chinese OFDI is an imperative role in the SSA infrastructural development and technology transfer across countries,which in turn upsurges the primary benefits to the overall national income.However in recent periods,western governments and media outlets and few scholars have been disseminating contradictory information,the expansion of Chinese OFDI and its interest in Africa was evidently attributable to an increasing appetite for accessing natural resources,the desire to access the market opportunity,political power,and diplomatic issues.In reality,at the first glance,most of the conclusions and media outlets have focused on,in one end of the spectrum,which is grabbing the world's attention starkly over polarized conclusions which is far from the facts and the possible significant economic evidence and realities.Whereas,most of the SSA governments are still keen and gladly welcoming by providing significant inducements to attract substantial Chinese OFDI,motivated by the positive expectation benefits from the presence of OFDI into their economies.As the first attempt of this thesis therefore to fill these widespread information gaps of the previous studies,information and media pundits with providing new robust evidence towards evaluating the extent and the potential notable benefits of Chinese OFDI in SSA.This thesis therefore the perplexing questions are being addresses about: how does Chinese OFDI improves the productivity of domestic manufacturing firms,does China's OFDI dynamism could improve the SSA's industrialization process,and the bilateral trade between China and SSA,as well as analysis how the BRI affect to ease the bilateral trade and future perspectives for Africa's investment.As per our knowledge,therefore,this study is among the first that can contribute to the emerging literature by quantifying and investigating the dynamism impact of Chinese investment in SSA from both the theoretical and empirical perspectives,policy implication,and government perspectives.The econometric model of the investigation was carried out deriving from the production function framework,the Solow model Cob-Douglas approach,and trade gravity model with multivariate regression estimation strategy,balanced and unbalanced panel dataset models and various robustness checking mechanisms for its spillovers benefit impact assessment.In the first empirical analysis(Chapter Three),therefore,for the first time,the study evaluated the performance of Chinese OFDI productivity and for domestic firm productivity spillovers at horizontal linkages in the SSA countries for its impact on socio-economic development.The evaluation was carried out through direct comparison with the domestic and Chinese OFDI firm productivity spillovers in the manufacturing firms using the ordinary least squares(OLS)and an instrumental variable generalized-method-ofmoments(GMM)two-step approaches for estimations and robustness concerns,respectively.In general,the results show that Chinese OFDI firms operating in the manufacturing sector were twofold productive than domestic firms and their presence can also generate positive productivity spillover benefits for domestic firms in the same industry level.Specifically,the investigation found that local firms have gained significant positive spillover benefits when they have had high absorptive capacities,whereas those domestic firms which have low-absorptive capacities have suffered negative spillovers with the presence of Chinese manufacturing firms in the same industry level.The study also found that non-exporting domestic firms have experienced significant positive productivity spillover benefits from the presence of Chinese firms.For the first time the study then secondly,the estimation has made the comparative analysis of Chinese OFDI with the United States(U.S.)investment in the SSA(Chapter Four)for the direct spillover benefits of the industrialization process evaluate which country investment could be more important for the SSA industrial transformation and evaluating whether Chinese investment in Africa could crowd out the U.S.investment from the region.The estimation was carried out using the panel dataset regression approach,the OLS fixed-effect,and the two-stage fixed-effect techniques for the analysis and robustness purpose,respectively.The empirical investigation,therefore,generally has provided strong evidence that the nexus of Chinese OFDI in the SSA has contributed positively and statistically significant impact for the industrialization process over the U.S.investment in the same period.Moreover,the study has also found that since the expansion of the Chinese OFDIs in the SSA countries,it has gradually a crowd out effect the U.S.investment from the region.Finally,the last part of the empirical study(Chapter Five)was analyzed for the first time the spillover impact on the BRI and Chinese OFDI on the bilateral trade between China and the SSA countries.The investigation was carried out using a trade gravity model,balanced panel dataset,and multivariate regression estimation strategy for the purpose of robustness checks.The result showed that Chinese OFDI,economic integration,home,and host country's GDP,and GDP per capita income variables have a robust positive and statistically significant impact on the improvement of the bilateral trade between China and the SSA countries.Moreover,the BRI has also explained positively the bilateral trade,however,the study found that it does not have enough evidence to stimulate significantly and it may could takes a longer time for the significant effects of the BRI to foster cross-border trade flows,investment,and deepen regional integration among the countries involved in the SSA since its infant stage at present.The study also found that geographical distance and the volatility of exchange rates have explained the negative and statistically significant impact on the bilateral trade between China and the SSA countries.Since we have used the US dollar as a common currency and exchange rate fluctuation could be the main factor that affects the international trade of each country.Overall,this study concludes that the overall effect of both China and Africa were much beneficial.