The Institutional Determinants of China's Outward Foreign Direct Investment Into Africa: A Political Economy Approach

Since the advent of the 'Go Global' policy in the year 2000, China's Outward Foreign Direct Investment (OFDI) into Africa has been on the rise. China is now the leading investor in greenfield investments regarding capital expenditure overtaking the United States in 2016 (Klasa Adrienne 2017).

The literature (Cheung et al. 2012; Shan et al. 2018; Drogendijk and Blomkvist 2013; Kolstad and Wiig 2011; Haglund 2008) on China's OFDI into Africa does not account for an important Political Economy (PE) dimension of China's OFDI into Africa that is needed to provide a comprehensive understanding of the location decision of Chinese Multinational Enterprises (CMNEs) in Africa. This PE dimension refers to the significant influence of the Chinese government in the FDI location choice of CMNEs in its role as the owner of large Chinese SOMNEs - and the provider of development aid - closely integrated with FDI based on a policy of non-interference. This study accounts for this PE dimension in two ways - by separating investments carried out by Chinese state-owned multinational enterprises (SOMNEs) and Privately-Owned Multinational Enterprises (POMNEs) - and by examining the moderating effect of Chinese development aid on the institutional determinants of Chinese FDI in Africa.

Methodologically, the study adopts a deductive research approach by using quantitative methods. We collect and analyse quantitative data for the period 2003-2015 and linking our results to hypotheses that developed in the conceptual framework. We find that institutional quality deters Chinese OFDI while institutional distance does not deter Chinese OFDI. We also find that regulative quality deters Chinese OFDI while regulative distance does not deter Chinese OFDI.

After splitting our sample into investments carried out by Chinese SOMNEs and POMNEs, we find that Chinese SOMNEs are more attracted to low institutional quality than Chinese POMNEs while low regulative quality attracts Chinese SOMNEs but does not matter for Chinese POMNEs. The results for our institutional distance variables show that Chinese SOMNEs are more attracted to high institutional distance than Chinese POMNEs. A high regulative distance attracts Chinese SOMNEs but does not matter for Chinese POMNEs. We find evidence of a moderating effect of Chinese aid on the relationship between institutional quality, institutional distance regulative quality and regulative distance on Chinese OFDI into Africa.