Economic complexity in Africa: the role of Chinese FDI and trade

Abstract

Purpose This study aims to examine the effect of Chinese foreign direct investment (FDI) and trade on economic complexity in Africa. Design/methodology/approach Panel data from 34 African countries between 2003 and 2022 are used. This study analyzes the data using a two-stage least square proposed by Lewbel (2012) and Driscoll and Kraay (1998) estimator based on robust standard errors and panel quantile regression via moments proposed by Machado and Silva (2019). Findings The results show that Chinese FDI and trade effectively upgrade economic complexity in Africa. Also, there is an inverted-U-shaped relationship between Chinese trade and economic complexity, thus revealing evidence of the trade Laffer curve. Originality/value Despite the intense debate on the Chinese-African economic relationship, to the best of the authors’ knowledge, no known study has examined the implications of Chinese FDI and trade on economic complexity in Africa. Therefore, this study fills this lacuna found in the literature and suggests that Chinese FDI and trade are veritable tools for technology diffusion and innovation, which are capable of upgrading economic complexity in Africa. However, the Chinese-African trade relationship should be complemented with sound trade policies for the sustainability of the beneficial effect of Chinese trade on economic complexity in Africa.