The impacts of institutional quality and business environment on Chinese foreign direct investment flow to African countries

Abstract

This study examines the impacts of institutional quality and business environment on Chinese foreign direct investment (F.D.I.) flow to Africa. We derive aggregate indicators of institutional quality and business environment using economic and governance institutions, doing business, transport efficiency indicators conducting a principal component analysis. We employ Poisson pseudo-maximum likelihood (P.P.M.L.) procedure to estimate the gravity model of F.D.I. flow as it can solve zero-valued observations and heterogeneity problems. Our findings disclose that institutional quality and business environment indicators are significant motivators of Chinese F.D.I. flow to Africa. Our findings are robust and similar after we account for endogeneity concerns using an I.V. estimator. Based on our results, we conclude that improvement in the business environment and the institutional quality of African countries is key to spurring Chinese F.D.I. flow to Africa.

Nonlinear bidirectional multiscale volatility transmission effect between stocks and exchange rate markets in the selected African countries

“…Babecky et al, 2013;Cevik et al, 2016;David & Grobler, 2020;Sare et al, 2019). Borojo and Yushi (2020) contended that owing to the introduction of numerous economic measures and reforms in the last decades, African countries have opened and harmonized financial markets, whereby the capitalization of the 10 largest African financial markets tripled from 2002 to 2008. Boako et al (2016) asserted that net private capital flows to Sub-Saharan African countries doubled between 2010 and 2012 in comparison with the period 2000-2007, whereas the portfolio and cross-border bank flows into Sub-Saharan African markets exceeded the US$17 billion in 2012.…”

Institutions versus location of new firms: does distance matter? Evidence from the Polish economy

“…A well-functioning institutional environment also influences the inflow of foreign direct investment. Research conducted by Borojo and Yushi (2020) confirmed that the improvement of the quality of the business and institutional environment of African countries stimulates the inflow of Chinese FDI to Africa. Additionally, Ascani et al (2016), using data on 6888 greenfield investment projects, proved that the national institutional framework quality is beneficial for attracting foreign investment.…”

Multinational Firm Growth and Sustainability Responses to Dynamics of Business Regulations in Host Market

“…As cited by reference [21], the 10 doing business indicators further decomposed into the number of steps it required, number of working days, the number of official costs, and minimum capital required in starting a business, registrations of firms, and dealing with firm constructions permits. The finding by reference [25] also adds that the scores from each of doing business indicators are worthful credentials in multinational firms' growth and sustainability responses in addition to traditional FDI determinants. In a similar manner [26], cross-border investors prefer frontiers, a top-ranked and stable economy.…”