The Impacts of China–Africa Economic Relation on Factor Productivity of African Countries

Abstract

This study attempts to empirically examine the impacts of the China–Africa economic relationship on factor productivity. The two-step system Generalized method of moments (GMM) estimator is applied to analyze the impacts of the Africa–China economic relationship on factor productivity of 44 African countries controlling Africa–China trade, Chinese foreign direct investment (FDI), and aid allocation to African countries for the periods 2003–2017. The estimation strategy controls endogeneity concerns. Another novelty of this study is calculating total factor productivity (TFP) using the regression approach and driving capital stock data. Additionally, the institutional quality index of countries is derived using principal component analysis. The findings of this study refer that the impact of the China–Africa economic relationship on the TFP of African countries is conditional to the domestic institutional quality of African countries. The results imply that the productivity embodied by the Africa–China economic relationship should be backed by the domestic adaptive capacity to use the benefit of China–Africa economic relations to excel factor productivity. Hence, the capability of African countries to benefit from the China–Africa economic relationship to enhance factor productivity should improve the institutional quality.

The driving factors of Chinese aid allocation to African countries

“…The loans for African countries are significantly determined by availability of oil and petroleum. For example, loans to Angola is profoundly attached to the country's oil resource, with about 50% of loans to the country being made to the state-owned oil company and the other half being oilbacked infrastructure loans (Miao et al, 2020). However, Chinese loan to Ethiopia is distributed across communication, energy and transportation among other sectors (Jyhjong et al, 2016).…”

“…Interest-free loans are predominantly allocated to assist loan recipient countries contract public infrastructure and launch initiatives to enhance their livelihood. Typically, the tenure of such loans is 20 years, including ten years of repayment, five years of use, and five years of grace time (Miao et al, 2020). Interestfree loans are currently being granted mainly to developing nations with comparatively excellent financial circumstances (China's Information Office of the State Council, 2011; Miao et al, 2020).…”

“…Concessional loans are raised on the market by China's Export-Import Bank, and as the loan interest is smaller than the People's Bank of China's benchmark interest, the distinction is made up by the state as financial subsidies. Currently, China's concessional loans have an annual interest rate of between 2% and 3%, and the repayment period is generally 15 to 20 years (including 5 to 20 years) (China's Information Office of the State Council, 2011; Miao et al, 2020).…”

Quantitative Dynamics Effects of Belt and Road Economies Trade Using Structural Gravity and Neural Networks

“…This initiative is taught by many as a tool or a blueprint to heavily promote Chinas trade via global foreign investment while cementing the go out agenda of the central government. For instance, in the case of East Africa, seven sovereign nations including Djibouti, Ethiopia, Kenya, Rwanda, and Tanzania are in the BRI partnership (Miao et al, 2020). Available literature espouses that the trading ties between Ethiopia and Djibouti have been cemented and strengthened since the birth of the BRI (Lewis et al, 2021).…”

An Assessment of Nigerians Perception towards Chinese Foreign Direct Investments and Its Acceptability in Nigeria

“…Also, to accelerate the development of critical projects to help Nigeria accelerate industrialization, explore cooperation in the green economy and digital economy. Also, to expand military and security cooperation for a win-win relationship, China pursues security cooperation (Bala, 2012;Miao et al, 2020;Odoh, 2021;Oyeranti et al, 2010).…”