Do Governance and Chinese OFDI Influence Differentially Economic Growth Across African Regions and Income Groups?

Abstract

Abstract Governance plays a pivotal role in shaping how FDI impacts economic growth in Africa. Weak governance in many African countries has posed a barrier to realizing the full potential of foreign investment on the continent. Our study, based on panel data from 41 African countries spanning 2005 to 2020 and employing Sys-GMM and pooled OLS econometrics methods, confirms that both Chinese OFDIs and governance independently contribute positively to economic growth in African nations. However, when considering their combined effect, it is positive but statistically insignificant. When examining regional and income groups, we found significant positive impacts in Central and East Africa, negative and significant impacts in North Africa, and varying effects elsewhere. In summary, governance is pivotal in optimizing the impact of Chinese OFDI on African economic growth, with regional and developmental nuances. Hence, we recommend that African governments and Chinese stakeholders join efforts to improve governance and increase Chinese OFDI in Africa.