Determinants of Chinese FDI in Sub-Saharan Africa (Evidence from Ghana)

Abstract

Motivation – Globally, emerging economies are liberalizing their foreign direct investment regimes and adapting to best practices to attract investment. Purpose – The purpose of this study was to identify the motives behind increased Chinese decision to make foreign direct investment in Ghana. Methodology – The data used in this study was mainly from secondary sources consisting of yearly observations from 1993 to 2017 for the independent variables, and from 1994 to 2018 for the dependent variable. The data was sourced from databases of World Bank on worldwide governance indicators and world development indicators, and Ghana Investment Promotion Center quarterly reports. A linear regression technique was applied using the yearly data to determine the effect of political stability, natural resources, gross domestic product, inflation, market size, exchange rate, and trade openness on Chinese foreign direct investment inflows to Ghana. Findings – The study established that trade openness, and market size influenced significantly the motives of Chinese to invest in Ghana, making China market-seeking investor. In the presence of political stability, natural resources, gross domestic product, inflation, and exchange rate, all seven control variables explained 98% of variability in Chinese foreign direct investment inflows to Ghana. Recommendations – It was recommended that government of Ghana should develop policies to increase openness of foreign trade for domestic enterprises to take part in the global economy fully. For future research, there is need to employ larger data size to carry out the same study to find whether political stability, natural resources, and inflation would be statistically significant