China's Impact on Africa The Role of Trade, FDI and Aid

Abstract

We investigate the impact of Chinese activities in sub-Saharan African countries with respect to the growth performance of economies in that region. Using a Solow-type growth model and panel data for the period 1991 to 2011, we find that African economies that export natural resources have benefited from positive terms-of-trade effects. In addition, there is evidence for displacement effects of African firms due to competition from China. Chinese foreign investment and aid in Africa does not have an impact on growth.

US and China Aid to Africa: Impact on the Donor-Recipient Trade Relations

“…Foreign aid policy reflects China's national priority in terms of economic interests. 19 China's aid to Africa is in line with China's Africa Policy, which is also important for China's -package deals‖ to Africa (Busse et al, 2014). Being the largest donor in the aid market, trade interests in the US aid are not as important as that in China's aid, but aid is indispensible for the US to protect its existing global structure of power and wealth (Johansen, 2014).…”

“…The opening up of the Chinese economy was accompanied by the fast-growing trade with African countries. In the late 1990s, China's remarkable economic performance made policy-makers realize that the future continuous supply of natural resources is needed in order to maintain a stable growth (Busse et al, 2014). Africa, with huge market potential and abundant nature resources, has become a strategically important region for China.…”

“…According to the White Paper on China's Foreign Aid 2014, more than 50% of China's aid was provided to African countries, see Figure 2. The main fields where China is most active in Africa are infrastructure and construction projects (Busse et al, 2014). China normally provides aid in the forms of grants, zero-interest loans and preferential loans.…”

The analysis of Pedroni Co-integration and VECM on export performance and exchange rate fluctuation

“…Second, fundamentals measures of policy and economic performance (the GDP rate of growth, the public debt, the level of reserves and the budget deficit) does not discuss that fundamentals better provided insulation better. Finally, Most of the research studies used Inflation as an parameter of macroeconomic instability in investigating exchange rate fluctuation and export performance maintained by Busse et al (2016) which explained that, steady macroeconomic environment encourages both investments in an economy hence economic growth. High exchange rate value relative to the US dollar, which indicates that the depreciated currency, will, at equilibrium, attract higher foreign investments, therefore would improve the gross domestic product in the country.…”

“…High exchange rate value relative to the US dollar, which indicates that the depreciated currency, will, at equilibrium, attract higher foreign investments, therefore would improve the gross domestic product in the country. This is because exchange rate permits us to determine the effect of relative wealth and relative labor costs on investment inflows (Busse et al 2016). Thus, a depreciation of a country's exchange rate would increase the relative wealth of foreign company and this result to an increase in foreign purchases of domestic assets.…”