China’s political and economic engagement in Africa has increased over the last two decades, resulting in a significant increase in Chinese foreign direct investment (CFDI) into the region. In this study, the link between CFDI and the productivity of labour is investigated in 22 sub-Saharan African countries from 2003 to 2020. The study utilised panel cointegration techniques that are suitable in the absence of cross-sectional dependence and take stationarity and long-run relationships into consideration. The findings from the panel dynamic ordinary least squares (OLS) and the fully modified OLS revealed that CFDI is important for driving labour productivity in the long run. In the short run, however, the study finds no significant influence of CFDI on labour productivity. Further findings reveal that CFDI Granger causes labour productivity. Additionally, the study finds that capital per labour is a necessity for boosting the productivity of labour in the region. The study recommends that African countries strengthen investment promotion agencies that actively facilitate CFDI and also negotiate favourable trade and investment agreements with China that promote technology transfer and skills development.
AbdelganyM., & SalehA. (2022). Human capital and labor productivity: Empirical evidence from developing countries. International Journal of Economics, Finance and Management Science, 10(4), 173–184.
2.
AitkenB., HansonG. H., & HarrisonA. E. (1997). Spillovers, foreign investment, and export behavior. Journal of International Economics, 43(1–2), 103–132. https://doi.org/10.1016/S0022-1996(96)01464-X
3.
AlamM. S., MiahM. D., HammoudehS., & TiwariA. K. (2018). The nexus between access to electricity and labour productivity in developing countries. Energy Policy, 122, 715–726. https://doi.org/10.1016/j.enpol.2018.08.009
4.
AlmeidaP., & KogutB. (1999). Localization of knowledge and the mobility of engineers in regional networks. Management Science, 45(7), 905–917. https://doi.org/10.1287/mnsc.45.7.905
5.
AlmustafaH., JabbouriI., & KijkasiwatP. (2023). Economic policy uncertainty, financial leverage, and corporate investment: Evidence from U.S. firms. Economies, 11(2), 37. https://doi.org/10.3390/economies11020037
6.
AlumM., MiahM., HammoudehS., & TiwariA. (2018). The nexus between access to electricity and labor productivity in developing countries. Energy Policy, 122, 715–726.
7.
AmatoL., CebulaR., & ConnaughtonJ. (2022). State productivity and economic growth. Regional Studies, Regional Science, 9(1), 180–203. https://doi.org/10.1080/21681376.2022.2059393
8.
ApostolovM. (2016). Effects of foreign direct investments. Evidence from Southeast Europe. Cuadernos de Economia, 39(110), 99–111. https://doi.org/10.1016/j.cesjef.2015.10.003
9.
AsadaH. (2020). Effects of foreign direct investment and trade on labor productivity growth in Vietnam. Journal of Risk and Financial Management, 13, 204.
10.
Asafo-AgyeiG., & KodongoO. (2022). Foreign direct investment and economic growth in sub-Saharan Africa: A nonlinear analysis. Economic Systems, 46, 101003. https://doi.org/10.1016/j.ecosys.2022.101003
11.
AtitiantiP., & QianD. (2022). Does Chinese foreign direct investment improve the welfare of Africans?Journal of African Business, 23(4), 964–983. https://doi.org/10.1080/15228916.2021.1969192
12.
BernankeB., & RotembergJ. (1997). The neoclassical revival in growth economics: Has it gone too far?NBER Macroeconomics Annual, 12, 73–114. https://doi.org/10.1086/654324
13.
BlomstromM., & PerssonH. (1983). Foreign investment and spillover efficiency in an underdeveloped economy: Evidence from the Mexican manufacturing industry. World Development, 11(6), 493–501. https://doi.org/10.1016/0305-750X(83)90016-5
14.
BlomstromM., & SjoholmF. (1999). Technology transfer and spillovers: Does local participation with multinationals matter?European Economic Review, 43(4–6), 915–923. https://doi.org/10.1016/S0014-2921(98)00104-4
15.
BloomN., MahajanA., McKenzieD., & RobertsJ. (2010). Why do firms in development countries have low productivity?American Economic Review: Papers & Proceedings, 100(2), 619–623.
16.
BogheanC., & StateM. (2015). The Relation between foreign direct investments (FDI) and labour productivity in the European Union Countries. Procedia Economics and Finance, 32, 278–285.
17.
CavesR. E. (1974). Multinational firms, competition, and productivity in host-country markets. Economica, 41(162), 176–193.
18.
CheneryH. (1960). Patterns of industrial growth. The American Economic Review, 50(4), 624–654. http://www.jstor.com/stable/181246
19.
China Africa Research Initiative. (2023). Data: Chinese investment in Africa. Retrieved from http://www.sais-cari.org/chinese-investment-in-africa
20.
ChoiI. (2001). Unit root tests for panel data. Journal of International Money and Finance, 20, 249–272.
21.
ClaassenC., LootsE., & BezuidenhoutH. (2012). Chinese foreign direct investment in Africa: Making sense of a new economic reality. African Journal of Business Management, 6, 11583–11597.
22.
Claudio-QuirogaG., Gol-AlanaL., & Maiza-LarrarteA. (2021). The impact of China’s FDI on economic growth: Evidence from Africa with a long memory. Emerging Markets Finance and Trade, 58(6), 1753–1770.
23.
CochraneR. (2022, October25). How China’s foreign investment in Africa is helping reduce poverty. The Borgen Project. https://borgenproject.org/chinas-foreign-investment-in-africa/
24.
ConiglioN. D., ProtaF., & SericA. (2015). Foreign direct investment, employment and wages in sub-Saharan Africa. Journal of International Development, 27, 1243–1266. https://doi.org/10.1002/jid
25.
DeradoD., & HorvatinD. (2019). Does FDI mode of entry have an impact on the host country's labor productivity? An analysis of the EU countries. Ekonomski vjesnik/Econviews - Review of Contemporary Business, Entrepreneurship and Economic Issues, 32(2), 405–423.
26.
DesbordesR., & FranssenL. (2019). Foreign direct investment and productivity: A cross-country, multi-sector analysis. Asian Development Review, 36, 54–79.
27.
DhimanR., & SharmaM. (2019). Relation between labour productivity and export competitiveness of Indian textile industry: Cointegration and causality approach. Vision, 23(1), 22–30. https://doi.org/10.1177/0972262918821230
28.
DokuI., AkumaJ., & OwusuafriyieJ. (2017). Effect of Chinese foreign direct investment on economic growth in Africa. Journal of Chinese Economic & Foreign Trade Studies, 10, 162–171.
29.
DomarE. (1946). Capital expansion, rate of growth, and employment. Econometrica, 14(2), 137–147. https://doi.org/10.2307/1905364
30.
DriffieldN., & TaylorK. (2000). FDI and the labour market: a review of the evidence and policy implications. Oxford Review of Economic Policy, 16(3), 90–103.
31.
DumitrescuE., & HurlinC. (2012). Testing for granger non-causality in heterogeneous panels. Economic Modelling, 46(1), 1450–1460.
32.
EggerP., & PfaffermayrM. (2001). A note on labour productivity and foreign inward direct investment. Applied Economics Letters, 8(4), 229–232.
33.
EmakoE., NuruS., & MenzaM. (2022). The effect of foreign direct investment on structural change in developing countries: An examination of the labor productivity dimension. Cogent Business & Management, 9(1), 2135209. https://doi.org/10.1080/23311975.2022.2135209
34.
EnejiM. A., OnyinyeI. J., KennedyD. N., & RongS. L. (2012). Impact of Foreign Trade and Investment on Nigeria’s Textile Industry: The Case of China. Journal of African Studies and Development, 4, 130–141.
35.
FakihA., GhazalianP., & GhazzawiN. (2020). The effects of power outages on performance of manufacturing firms in MENA region. Review of Middle East Economics, 16(3). https://doi.org/10.1515/rmeef-2020-001
36.
FuX. (2008). Foreign direct investment, absorptive capacity and regional innovation capabilities: Evidence from China. Oxford Development Studies, 36(1), 89–110. https://doi.org/10.1080/13600810701848193
37.
GathaiyaR. N., KinyuaJ., MachukiP., & KeraroV. (2014). The impact of foreign direct investments by Chinese companies in Kenya. International Journal of Management & Business Studies, 4(1), 9–17.
38.
HaV. T. C., HolmesM., DoanT., & HassanG. (2019). Does foreign investment enhance domestic manufacturing firms’ labour productivity? Evidence from a quantile regression approach. Economic Change and Restructuring, 54, 637–654. https://doi.org/10.1007/s10644-019-09251-x
39.
HanousekJ., KočendaE., & MaurelM. (2011). Direct and indirect effects of FDI in emerging European markets: A survey and meta-analysis. Economic Systems, 35(3), 301–322. https://doi.org/10.1016/j.ecosys.2010.11.006
40.
HarrodR. (1939). An essay in dynamic theory. Economic Journal, 49(193), 14–33. https://doi.org/10.2307/2225181
41.
HerzerD., StrulikH., & VollmerS. (2012). The long-run determinants of fertility: Once century of demographic change 1990–1999. Journal of Economic growth, 17(4), 357–385.
42.
IheonuC., AsonguS., OdoK., & OjiemP. (2020). Financial sector development and investment in selected countries of the economic community of West African States: Empirical evidence using heterogeneous panel data method. Financial Innovation, 6(1), 1–15. https://doi.org/10.1186/s40854-020-00195-0
43.
ImK., PesaranM., & ShinY. (2003). Testing for unit roots in heterogeneous panels. Journal of Econometrics, 115, 53–74.
44.
International Labour Organization. (2023). Why is labor productivity important in economic integration. https://www.ilo.org/hanoi/Informationresources/Publicinformation/newsitems/WCMS_340867/lang--en/index.htm#:~:text=For%20businesses%2C%20increased%20productivity%20brings,is%20key%20to%20job%20creation
45.
KaoC. (1999). Spurios regression and residual based tests for cointegration in panel data. Journal of Econometrics, 90(1), 1–44.
46.
KaoC., & ChiangM. (2000). On the estimation and inference of a cointegrated regression in panel data. In BaltagiB. (Ed.), Nonstationary panels, panel cointegration and dynamic panels (pp. 179–222). Elsevier.
47.
KhanW. A., RahmanZ. U., & KhattakS. I. (2023). Exploring the macro-market determinants of Chinese FDI in OBOR nations: considering the role of IFRS adoption. Journal of Asia Pacific Economy. https://doi.org/10.1080/13547860.2023.2218722
48.
KhodeirA. (2016). The impact of Chinese direct investments on employment in Africa. Journal of Chinese Economic and Foreign Trade Studies, 9(2), 86–101.
49.
KokkoA. (1996). Productivity spillovers from competition between local firms and foreign affiliates. Journal of International Development, 8(4), 517–530.
50.
KolstadI., & WiigA. (2012). What determines Chinese outward FDI?Journal of World Business, 47(1), 26–34. https://doi.org/10.1016/j.jwb.2010.10.017
51.
LatifE. (2015). A panel data analysis of the demand for electricity in Canada. Economic Papers, 34(3), 192–205.
52.
LevinA., LinC., & ChuC. (2002). Unit root tests in panel data: Asymptotic and finite sample properties. Journal of Econometrics, 108, 1–24.
53.
LewisW. (1954). Economic development with unlimited supplies of labour. The Manchester School, 22(2), 139–191.
54.
LiC., & TannaS. (2019). The impact of foreign direct investment on productivity: New evidence for developing countries. Economic Modelling, 80, 453–466.
55.
LiuX., ParkerD., VadyaK., & WeiY. (2001). The impact of foreign direct investment on labour productivity in the Chinese electronics industry. International Business Review, 10, 421–439.
56.
MaddalaG., & WuS. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and Statistics, 61(0), 631–652.
57.
MakielaK., & OuttaraB. (2018). Foreign direct investment and economic growth: Exploring the transmission channels. Economic Modelling, 72, 292–305. https://doi.org/10.1016/j.econmod.2018.02.007
58.
MakueiA. J. G. (2020). Impacts of Chinese investment on economic growth in sub-Saharan Africa (2007–2017). https://doi.org/10.2139/ssrn.3576348
59.
MarkN., & SulD. (2003). Cointegration vector estimation by panel DOLS and long-run money demand. Oxford Bulletin of Economics and Statistics, 65(5), 655–680.
60.
MatekenyaW., & MoyoC. (2023). Foreign divestment, economic growth and development in South Africa: An empirical analysis. Journal of Chinese Economic and Foreign Trade Studies, 16(1), 4–21. https://doi.org/10.1108/JCEFTS-01-2022-0006
61.
M’bayeC. (2022). Labour productivity and economic growth in the WAEMU region: Both a puzzle and a key to economic development. African Journal of Business and Economic Research, 17(3), 67–87.
62.
MiaoM., BorojoD., YushiJ., & DesalegnT. (2021). The impacts of Chinese FDI on domestic investment and economic growth for Africa. Cogent Business & Management, 8(1), 1886472. https://doi.org/10.1080/23311975.2021.1886472
63.
MiaoM., LangQ., BorojoD., YushiJ., & ZhangX. (2020). The impact of Chinese FDI and China-Africa trade on economic growth of African countries: The role of institutional quality. Economies, 8(3). https://doi.org/10.3390/economies8030053
64.
NathanielS., & IheonuC. (2019). Carbon dioxide abatement in Africa: The role of renewable and non-renewable energy consumption. Science of the Total Environment, 679, 337–345.
65.
NgepahN., & UdeaghaM. (2018). African regional trade agreements and intra-African trade. Journal of Economic Integration, 33, 1176–1199. https://doi.org/10.11130/jei.2018.33.1.1176
66.
NgepahN., & UdeaghaM. (2019). Supplementary trade benefits of multi-memberships in Africa regional trade agreements. Journal of African Business, 20(4), 505–524. https://doi.org/10.1080/15228916.2019.1584719
67.
NiriH., & AnaarN. (2015). The effect of financial development on labor productivity: Evidence from the Middle East and North Africa. Indian Journal of Fundamental and Applied Life Sciences, 5(S2), 2329–2337.
68.
Oji-OkoroI., HuangH., AbbaS., & EdunA. (2014). FDI trade and its effects on agricultural development in Nigeria: Evidence from time series analysis. International Journal of Management Science and Business Administration, 1(1), 28–40.
69.
OlarewajuF., AreoO., OgundipeA., OgunbiyiT., & AsaleyeA. (2020). Capital and labor productivity: A comparative study of Nigeria and South Africa. Asian Economic and Financial Review, 10(2), 1384–1395.
70.
OsanoH., & KoineP. (2016). Role of foreign direct investment on technology transfer and economic growth in Kenya: A case of the energy sector. Journal of Innovation and Entrepreneurship, 5, 31. https://doi.org/10.1186/s13731-016-0059-3
71.
PedroniP. (2000). Fully modified OLS for heterogeneous cointegrated panels. In BaltagiB. (Ed.), Nonstationary panels, panel cointegration and dynamic panels (pp. 93–130). Elsevier.
72.
PedroniP. (2001). Purchasing power parity tests in cointegration panels. The Review of Economics and Statistics, 83, 727–731.
73.
PesaranM. H. (2004). General diagnostic tests for cross section dependence in panels (Cambridge Working Papers in Economics 0435). Faculty of Economics, University of Cambridge.
74.
PhillipsP., & HansenB. (1990). Statistical inference in instrumental variables regression with I(1) processes. Review of Economics Studies, 57, 99–125.
75.
PhillipsP., & MoonH. (1999). Linear regression limit theory for nonstationary panel data. Econometrica, 67, 1057–1111.
76.
PopescuR. G. (2010). The impact of foreign direct investments on labour productivity: A review of the evidence and implications. The Romanian Economic Journal, XIII(36), 137–154.
77.
RossA. G., & FlemingN. (2022). The impact of Chinese foreign direct investment on host country economic growth. Local Economy, 37(6), 507–525. https://doi.org/10.1177/02690942231162850
78.
RossA. G., OmarM., XuA., & PandeyS. (2019). The impact of institutional quality on Chinese foreign direct investment in Africa. Local Economy, 34(6), 572–588. https://doi.org/10.1177/0269094219882329
79.
RostowW. (1960). The stages of economic growth: A non-communist manifesto. Cambridge University Press.
80.
SaikkonenP. (1992). Estimation and testing of cointegrated systems by an autoregressive approximation. Econometric Theory, 8, 1–27.
81.
SarwarA., KhanM., SarwarZ., & KhanW. (2021). Financial development, human capital and its impact on economic growth of emerging countries. Asian Journal of Economics and Banking, 5(1), 86–100.
82.
SaucedoE., OzunaT., & ZamoraH. (2020). The effect of FDI on low and high-skilled employment and wages in Mexico: A study for the manufacture and service sectors. Journal of Labour Market Research, 54(9). https://doi.org/10.1186/s12651-020-00273-x
83.
SongH. (2021). Report on Chinese companies investing in Africa released. China Business Times.
84.
StockJ., & WatsonM. (1993). A simple estimator of cointegrating vectors in higher order integrated systems. Econometrica, 61, 783–820.
85.
SylvaireD. D. Y., QingW. H., RanC. H., KassaiD. L., VincentN., DouceD. A. C., FrankO. K., NicaiseN. P., TraoreF., & BorisA. F. (2022). The impact of China’s foreign direct investment on Africa’s inclusive development. Social Science & Humanities Open, 6, 100276. https://doi.org/10.1016/j.ssaho.2022.100276
86.
TangD., & GyasiK. B. (2012). China – Africa foreign trade policies: The impact of China’s foreign direct investment (FDI) flow on employment of Ghana. Energy Procedia, 16, 553–557.
87.
UdeaghaM., & BreitenbachM. (2021). Estimating the trade-environmental quality relationship in SADC with a dynamic heterogeneous panel model. African Review of Economics and Finance, 13(1), 113–165.
WangY., ChenC., & HuangY. (2014). Economic policy uncertainty and corporate investment: Evidence from China. Pacific-Basin Finance Journal, 26, 227–243. https://doi.org/10.1016/j.pacfin.2013.12.008
90.
World Bank. (2022). Data Bank. https://data.worldbank.org
91.
World Bank. (2023). World development indicators. https://datacatalog.worldbank.org/search/dataset/0037712/World-Development-Indicators
92.
ZhangJ., AlonI., & ChenY. (2014). Does Chinese investment affect Sub-Saharan African growth?International Journal of Emerging Markets, 9(2), 257–275. https://doi.org/10.1108/IJoEM-10-2013-0171
93.
ZhuG., & TanK. Y. (2000). Foreign direct investment and labor productivity: New evidence from China as the host. Thunderbird International Business Review, 42(5), 507–528.
94.
ZoakaJ., & GungorH. (2023). Effects of financial development and capital accumulation on labor productivity in sub-Saharan Africa: New insight from cross sectional autoregressive lag approach. Financial Innovation, 9, 1. https://doi.org/10.1186/s40854-022-00397-8
95.
ZuluJ., & BandaB. (2015). The impact of labor productivity on economic growth: The case of Mauritius and South Africa. Southern African Journal of Policy and Development, 2(1), 26–41.
