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’s findings 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.
Photo by Ellie Burgin from Pexels