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Analysis of Chinese Trade and Foreign Direct Investment on eight African countries Economic Development
China’s fast-growing economic ties with Africa are attracting considerable attention. The relationship came into the spotlight during the summit of the Forum on China-Africa
Today’s scale and pace of China’s trade and investment flows with Africa, however, are wholly unprecedented.
Trade between Africa and China began to accelerate in about 2000.
Africa’s imports from China quadrupled to US$26.7 billion. In 2006 Sub-Saharan Africa
(SSA) accounted for the bulk of the Africa-China trade; the region’s exports to China amounted to US$25 billion, about 85 percent of all African exports to China that year.
According to statistics compiled by China, for 2004–06 Africa ran a small trade surplus, about US$2 billion each year (See IMF Working Paper (2007) “What Drives China’s Growing Role in Africa?”
Trade between China and Africa is also expanding rapidly. Premier Wen Jiabao of China stated during the China-Africa Cooperation Forum summit that China hopes to increase that amount to $100 billion by 2010.
Table 1: China Imports and Exports from Africa (US$ millions)
Figure 1: China-Africa Trade Statistics 1995-2005
Source: World Atlas Trade Data, Tralac Analysis (Centre for Chinese Studies, Stellenbosch University (South Africa))
China started providing aids to Africa in 1956.
China has also been providing debt relief to African countries on its own terms.
Chinese capital flows to Africa in the form of foreign direct investment (FDI) are growing.
Table 2: Chinese capital flows to Africa
Figure 2: China FDI flows to Africa
Source: Jonathan HOLSLAG “China’s FDI in SUB-SAHARA AFRICA” Brussels Institute of Contemporary China Studies.
The importance of South-South trade has been recognized for some time; however, there has been no in-depth study conducted specifically on Africa-China trade relations to date.
The main objective of this study is to build a basic understanding of the potential of Africa-China trade and investment relations.
China is not a new player in Africa.
So, what is so important about economic growth? Economic growth leads to greater economic prosperity. “Foreign Direct Investment and Growth: Does the Sector matter?”).
-What role does China-Africa trade relationship play in African countries economic growth?
-What is the contribution of Chinese outward FDI to host African countries economic growth?
The need for base-line studies to assess the changing future impact of China on Africa and to the extent that trade links are an accurate reflection of the wider impact of China on Africa.
The main aim of this research is to understand the role of China in the economic growth process of African countries trough its trade relationship with those countries.
-See the Africa’s Position in International Trade.
-Present the statistics (data) on the Chinese net export with Africa.
-Measure and analyze volume and composition of trade between China and Africa.
-Measure the impact of the trade relationship on African countries trade balance.
-To examine the contribution of Chinese FDI on African countries economy.
-To determine whether FDI and ICT exerts different effects on African countries economic growth.
We would expect to observe greater spillover effect through Chinese trade relationship with Africa on Africa economic growth. We also expect that Chinese FDI flows to Africa will tend to have a positive effect on African countries economic growth.
In recent years, Sino-African trade has enjoyed particularly rapid growth. Furthermore, the Chinese have not used their economic power to place political pressure on Africa.
China’s burgeoning relationship with Africa is alarming not only because it has facilitated Chinese energy and weapons dealings, but also because it is competing with U.S.–African trade. The China–Africa Cooperation Forum (CACF) was founded in 2000 to promote stronger trade and investment relations between China and African countries in both the government and private sectors.
China is also bringing irresistible “some say unfair” competition to Africa.
The Chinese government has also actively promoted their own brand of economic development and reform model to African countries, encouraging government counterparts in several countries to visit China and learn from their experience. China’s efforts to encourage African governments to fashion their economic systems after their own is an important indication of the soft power that China hopes to ultimately project in Africa.
The trade performance of individual countries tends to be a good indicator of economic performance since well performing countries tend to record higher rates of GDP growth.
But the benefits of international trade for economic growth and development are difficult to understate.
In models of endogenous growth, trade can impact upon growth by allowing access to the innovative products of other countries.
We will predict manufacturing imports of China to a sample of African countries over a 12-year period (1995-2007). The sample will consist on some African countries.
IV-1.Time-series data analysis
DS type time-series are nonstationary and they contain unit roots. Secondly, the Engle-Granger residual-based test tests the existence of cointegration among the variables for each country. Thirdly, if a cointegration relationship does not exist, VAR analysis in first difference is applied, however if the variables are cointegrated, the analysis continues in a cointegration framework.
– test if the system is stable, using the unit root tests
– if there are unit root tests on the series of variables, apply cointegration tests
Observing from theory the possible growth promoting roles of both FDI and Trade, our data analysis is modelled in an aggregate production function (APF) framework. The standard APF model has been extensively used in econometric studies to estimate the impacts of FDI inflows and trade on growth in many developing countries. According to Lipsey (2001), the impact of FDI on economic growth possibly operates through TFP (A). Conversely, if the test statistic falls below the lower critical value the null hypothesis cannot be rejected.
;We pursue this analysis and test the direct impact of FDI had on the growth of two different countries sample divided as importers countries and exporter’s countries.
Growth here is the GDP growth.
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Spillovers,” Economic Journal 107: 134-149.
Harry G. Broadman: “Africa’s silk road”; China and India new Economic Frontier.
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SSB (State Statistical Bureau of China), China National Science and Technology Committee, China Statistical Yearbook on Science and Technology, Statistical Publishing House.
OECD study, The Rise of China and India: What’s in it for Africa?
“Foreign Direct Investment and Growth: Does the Sector matter?” Cross-Sectional Time Series. Testing Export-led Growth Hypothesis in Kenya: An ADRL Bounds Test Approach Mohan, Ramesh and Nandwa, Boaz. If the variance increases over time, then the time-series becomes explosive.