Chinese foreign direct investment and business start-ups in Africa

Abstract

In recent decades, Chinese FDI has become an integral investment source for African countries and has, therefore, engendered studies seeking to understand the determinants of these flows. In a quest to identify the factors that stimulate these flows, this paper assesses whether the ease of starting a business induces Chinese FDI flow to Africa. The analysis is based on panel data for 46 African countries between 2004 and 2018. The results from fixed-effects estimations suggest that Chinese FDI is attracted by the ease of starting a business in African economies. This finding also holds for sub-Saharan Africa (SSA) and is robust across all estimations. The results also provide corroborating evidence that identifies Chinese FDI as market and resource-seeking, attracted to large markets and economies with abundant natural resources. The findings suggest that improving business regulations could be a stimulant for Chinese FDI flow to Africa. In evaluating the nexus between Chinese FDI and business start-ups, this paper provides new evidence to complement the dated studies on this theme.