The Chinese are Here: Import Penetration and Firm Productivity in Sub-Saharan Africa

Abstract

This study presents the first micro-level analysis of the causal effect of Chinese import penetration on firm productivity in 24 sub-Saharan Africa (SSA) countries. We make key contributions to the literature by examining the heterogeneous effects of Chinese imports on firm productivity using data on transport infrastructure, and by distinguishing between import competition and import of intermediate inputs. Two instrumental variables, one based on exogenous geographic characteristic of ports and transportation technology shock, and the other based on a supply-side shock, are constructed to address the endogeneity of import penetration. The results indicate that imports from China impact positively on firm productivity, mainly through imports of intermediate inputs, and there is significant heterogeneity of these effects in terms of firms' proximity to ports and initial productivity level. Overall, our findings suggest that Chinese imports could be viewed as an opportunity for Sub-Sahara Africa firms to enhance their productivity. Furthermore, they highlight the need for developing countries to invest in transport infrastructure to effectively promote firms participation in international markets.

Rising to the Challenge or Perish? Chinese Import Penetration and its Impact on Growth Dynamics of Manufacturing Firms in South Africa

“…To date only two studies have looked at firms in Africa. Darko et al (2021) find that increasing Chinese competition impacts positively on firm productivity in 24 sub-Saharan Africa countries, mainly through imports of intermediate inputs, and there is significant heterogeneity of these effects in terms of firms' proximity to ports and initial productivity level. Hou et al (2021) use firm and industry level panel data to investigate the impact of Ghana-China trade on labour productivity and compares it with Ghana-OECD trade.…”

Economic transformation in Africa: What is the role of Chinese firms?

“…Others emphasise that trade with China has promoted ET. For instance, importing from China has been found to increase productivity among African firms through import competition and skills upgrading (Darko et al, 2021; Hou et al, 2021). Moreover, not only capital goods imported from China (and other Global South countries) improve productivity, they are also cheaper and better suited to the needs of African firms, ensuring higher profits, wider availability of spare parts and repair support compared to those imported from the Global North (Hanlin & Kaplinsky, 2016; Mano et al, 2022).…”

“…Section 4.1 has discussed how trade between China and African countries has, in many cases contributed to innovation through the introduction of new equipment (Darko et al, 2021; Hou et al, 2021). Trade opens up effective channels for firms in African countries to increase productivity.…”

“…Some studies find that Chinese FDI promotes technological progress in Africa more than FDI from other countries (Hu et al, 2021). This may be because Chinese companies present smaller technology gaps with African firms compared to their European counterparts (Darko et al, 2021; Hou et al, 2021; Wolf, 2016b). Other studies find that trade openness with China does not affect productivity growth of African firms (Elu & Price, 2010).…”

“…Others emphasise that trade with China has promoted ET. For instance, importing from China has been found to increase productivity among African firms through import competition and skills upgrading (Darko et al, 2021;Hou et al, 2021).…”