Understanding China’s Move into Africa: An Empirical Analysis

The aim of this paper is to understand the dynamics that lie behind the recent Chinese move into Africa by empirically exploring the determinants of Sino-African relationships. In order to have a comprehensive picture, the analysis takes into consideration the main channels of commercial and political interactions: outward foreign direct investment (OFDI), trade and aid (international economic cooperation). The empirical analysis utilises a panel of data set, from 1998 to 2005, for 43 African countries. The econometric estimates for three simultaneous equations are based on an instrumental variables method. Results show that the Chinese move to Africa is driven by strategic interaction among the three channels (FDI, trade and economic cooperation) as well as by pull factors, i.e. the characteristics of the receiving countries in terms of natural resource endowments and their market potential.