Research Article

Political Risk and Chinese Outward Foreign Direct Investment to Africa: The Role of Foreign Aid

Published in: Africa Journal of Management
Volume 3 , issue 1 : Africa Academy of Management AFAM) 2016 Conference: Prospects and Challenges of Managing Africa’s Future Moses Acquaah and Moses N. Kiggundu (eds.) , 2017 , pages: 82–98

DOI: 10.1080/23322373.2016.1275941

Author(s): Jane Lu Department of Management and Marketing, Faculty of Business and Economics, Australia , Xueli Huang [cor1] , Michael Muchiri School of Management, RMIT University, Australia

Keywords: FDI , international aid , political risk , Africa , China

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Abstract

We investigated the role of Chinese Aid in mitigating the political risk for Chinese outward foreign direct investment (OFDI) in Africa, especially in resource-abundant countries. Using panel data for 50 African countries that have received Chinese OFDI from 2002 to 2012, we tested two hypotheses developed based on the two-tier bargaining model proposed by Ramamurti (2001). Our results indicated that Chinese aid had a positive moderating effect on the relationship between political risk and OFDI in those resource-abundant countries. However, such a moderating effect was negative for all African countries. Theoretical and managerial implications following on from this study are discussed.

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