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How does South-South FDI affect host economies? Evidence from China-Africa in 2003–2018

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  • Zhang, Kevin H.

Abstract

Foreign direct investment (FDI) from emerging markets to developing countries has increased significantly for recent decades. Such the South-South FDI tends to behave differently from the North-South FDI. The rise of China's FDI (C-FDI) in Africa has generated considerable controversy. While the popular opinion in Africa about C-FDI is positive, the Western reaction often is highly negative. How does C-FDI affect Africa's economies? Do C-FDI and the North-FDI have different impacts on Africa? This paper studies the issues by using the cross-country panel data in 2003–2018. We find that benefits from C-FDI to African economies are greater than those from the North FDI, and that the promoting effects of C-FDI concentrate on host-country's exports and industrialization. Uniquely the large Chinese investment in Africa's infrastructure not only contributes overall economic growth, but also enhance host-country's absorptive capacity in attracting and utilizing foreign capital.

Suggested Citation

  • 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.
    • Handle: RePEc:eee:reveco:v:75:y:2021:i:c:p:690-703
    DOI: 10.1016/j.iref.2021.04.015
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    More about this item

    Keywords

    Foreign direct investment (FDI); China's FDI (C-FDI); South-South FDI; North-South FDI; Industrialization; Economic growth;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F23 - International Economics - - International Factor Movements and International Business - - - Multinational Firms; International Business
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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