Determinants of Chinese Foreign Direct Investment in Selected North African Countries

Abstract

China and North African economic relations are expanding rapidly as both an important trading partner and increasingly as an investor into the region. The main objective of this study is to examine the determinants of Chinese FDI in selected North African countries of Egypt, Sudan and Morocco between 2002 and 2020. The study employed standard OLS and standard date panel techniques which enabled us to differentiate between efficiency effects of fixed and random effects. The results of the analysis indicated that market size, openness and inflation rate were found to be positively related to Chinese FDI inflows with the coefficient of openness significant. The indicators of institutional quality namely control of corruption and government effectiveness were found to be positively related to Chinese FDI inflows with coefficients significant. Furthermore, political stability, regulatory quality, and rule of law were found to be negatively related to Chinese FDI inflows with their coefficients significant. Voice and accountability is found to be negative and insignificant. The result for DEBT is found to be negatively related to Chinese FDI inflows with coefficient significant. The results revealed that geographical distance between sampled North African countries and China does not encourage Chinese FDI inflows. Based on the results, this study concludes that improvement in the institutional quality, and enacting policies that facilitates open economy and helps moderates inflation rate are keys to spurring Chinese FDI inflows to the selected North African countries.