When the Dragon Starts to Spit Fire: The Role of Chinese Foreign Direct Investment in African Corruption

Abstract

This paper studies the empirical relationship between Chinese foreign direct investment [CFDI] and corruption in Africa. Correlational and anecdotal evidence indicate that the recent surge in CFDI in Africa seems to be accompanied by an increase in corruption in African host countries. Theoretically, such relationship may be explained by the clash between the corruptive nature of CFDI with Africa’s proneness to corruption. Nevertheless, as empirical evidence is lacking, it remains questionable whether this relationship is based on causality. I attempt to answer this question by studying a strongly balanced panel of 48 African countries between 2012-2020. The results indicate a small, positive effect of CFDI on corruption in African host countries. The effect is conditional on host country development, which negatively mitigates the effect of CFDI on corruption in Africa, e.g. increases in corruption following increases in CFDI are smaller in more developed African countries. The results may even imply that the corruptive effects of CFDI can be offset by host countries through sufficient economic development. There is weak evidence for an unconditional positive effect of CFDI. The results may warrant African leaders and the international community that action is required, exemplary by enhancing (inter)national regulation and scrutiny regarding corruption.