US and China aid to Africa: Impact on the donor-recipient trade relations

This paper investigates the impact of the US and China's foreign aids to Africa on trade flows between donor and recipient countries. Evidence from the gravity model estimates reveals that the two donors' exports are strengthened by their aids to African partners. Interestingly, China's aid shows a positive effect on its total volume of trade and imports from Africa, while the aid from the US exhibits little impact on the US-Africa total trade and its imports from Africa. A possible explanation for such a difference could be due to the dissimilar national interests of donors in Africa. This study finally suggests that African countries should accelerate the pace of advancing domestic economies and rely less on foreign assistance, in order to establish a fairer and more equal international economic order.     

Key issues in regional growth and integration in Southern Africa

ABSTRACT

The decade to 2015 saw rapid growth in trade between Southern African Development Community (SADC) countries. Much of this growth reflected South African exports to its neighbours of diversified manufactured goods to meet growing urban consumption and to supply inputs to mining and infrastructure. While most SADC countries, aside from South Africa, grew quite rapidly over this period, their exports remained oriented to a narrow range of minerals and agricultural commodities destined to go outside the region. Drawing from a series of sectoral studies, we assess key regional issues including the investment and production decisions of firms whose operations stretch across borders, and consider the implications for a bottom-up integration agenda that could build productive capabilities across countries. Our evaluation highlights the importance of the spread of supermarkets, the need to address transport and logistics, and value chains whose competitive advantages are inherently regional, as in the cases of poultry and mining.     

Regional Trade Arrangements in Africa: Past Performance and the Way Forward

Abstract: Regional trade arrangements (RTAs) in Africa have been ineffective in promoting trade and foreign direct investment. Relatively high external trade barriers and low resource complementarity between member countries limit both intra‐ and extraregional trade. Small market size, poor transport facilities and high trading costs make it difficult for African countries to reap the potential benefits of RTAs. To increase regional trade and investment, African countries need to undertake more broad‐based liberalization and streamline existing RTAs, supported by improvements in infrastructure and trade facilitation. Early action to strengthen the domestic revenue base would help address concerns over revenue losses from trade liberalization.     

Determinants of China's and Japan's Foreign Aid Allocations in Africa

Foreign aid plays an important role in promoting economic development in Africa. Recently, several countries, most notably China, have emerged as alternative sources of foreign aid. However, their motives for providing foreign aid have been questioned. The present study examines and compares determinants of China's and Japan's foreign aid allocations in Africa. It assumes that the distribution of foreign aid was determined by the aid donors’ self‐interest and also by the aid recipients’ needs. Three panel model methods, namely, the pooled OLS method, the one‐way fixed effects method and the two‐way fixed effects methods, were employed to examine and compare the patterns of China's and Japan's foreign aid allocation in Africa. The main finding was that the provision of foreign aid by China and Japan was primarily driven by the aid donors’ self‐interest. Additionally, the size of population in a recipient country was an important element to determine China's and Japan's aid allocations. The findings also suggest that Japan tended to pay more attention to the aid recipient countries’ needs as well as to the quality of governance and institutions in these countries. Overall, the findings indicate that there was no considerable difference in the motives for the provision of aid between the two aid donor countries.     

中国对非援助的出口贸易效应——基于出口增加值的视角

基于Eora26投入产出表数据和全球中国官方金融数据库，本文检验了中国对非援助与中国对非出口增加值的因果关系及机制。研究结果显示：(1)中国对非援助可以显著提升中国对非出口增加值，在进行了一系列的稳健性检验和处理了内生性问题后，该结论依然成立；(2)提高非洲国家的交通和通信设施质量是中国对非援助影响出口增加值的主要机制；(3)中国对非援助的出口增加值效应会随产业分类、援助类型的不同而产生差异；(4)进一步研究表明，非洲接受的DAC发展委员会国家和国际多边组织援助的“碎片化”会削弱中国对非援助的出口增加值的促进作用，这种影响在经济实力和政府治理能力较弱的非洲国家更为明显。本文的结论为中国对非援助的贸易效应提供了进一步的经验支持，并揭示了中国对非援助影响中国对非出口增加值的内在规律。这对于加强中非经贸关系，构建“中非命运共同体”具有重要意义。     

Does China Transfer Productivity Enhancing Technology to Sub‐Saharan Africa? Evidence from Manufacturing Firms*

Abstract: This paper considers whether trade between China and sub‐Saharan Africa results in productivity‐enhancing technology transfers to sub‐Saharan African manufacturing firms. As trade flows between countries potentially results in interactions that lead to technological improvements in the production of goods and services, we parameterize the level of total factor productivity for African manufacturing firms as a function of foreign direct investment flow, and for the country in which it operates, trade openness with China, and its interaction with foreign direct investment. With micro‐level data on manufacturing firms in five sub‐Saharan African countries, we estimate the parameters of firm‐level production functions between 1992 and 2004. Our parameter estimates reveal that across the firms and countries in our sample, there is no relationship between productivity‐enhancing foreign direct investment and trade with China. In addition, increasing trade openness with China has no effect on the growth rate of total factor productivity. To the extent that total factor productivity and its growth is a crucial determinant of economic growth and living standards in the long run, our results suggest that increasing trade openness with China is not a long‐run source of higher living standards for sub‐Saharan Africa.     

The Role of Trade Policies in Building Regional Value Chains – Some Preliminary Evidence From Africa

Regional value chains (RVCs) are considered as an important step towards greater integration into global value chains (GVCs), but African countries trade very little value added with each other. Based on the UNCTAD‐Eora GVC database, this paper estimates a panel model from 2006 to 2012 for 37 African countries and sheds light on the role of trade costs in building RVCs in Africa. First evidence is provided for a significantly negative effect on foreign value added of charged tariffs on capital goods and higher time to trade. In addition, higher regulatory quality and a stronger telecommunication infrastructure seem to be positively correlated with a country's ability to participate in RVCs.     

Reviving Foreign Direct Investments in Southern Africa: Constraints and Policies

Abstract: The objective of this paper is to examine the factors that determine the inflow of foreign direct investment (FDI) to SADC member states, which is critical for introducing widespread technological change, complementing domestic investment, improving the agility and competitiveness of firms, and providing access to skills and global markets. Since the end of apartheid in 1994, FDI flows to SADC have improved significantly increasing from an annual average of only $660 million in 1985–95 to about $5.9 billion in 2000–04. A number of countries in the region have taken additional steps to reform their policy stance in order to boost prospects for increased FDI inflows, while South Africa has now become an important growth pole for attracting foreign investment to the region. However, despite the economic and institutional reforms, especially by some of the low‐income countries in the region, the flow of FDI to SADC member states remains low and concentrated in few countries and sectors. The paper identifies a number of factors constraining FDI inflows, including the small size of the regional economy, persistent macroeconomic uncertainty in some important economies, high administrative barriers, inadequate physical infrastructure, weak financial systems, and growing perception of corruption. The paper argues that SADC member states need to strengthen efforts to enhance policy frameworks, both individually and collectively, in order to make the region attractive for foreign investors. More progress is required on improving the efficiency of institutions, macroeconomic policy co‐ordination and harmonization, opening up to trade, strengthening energy, transport and telecommunications infrastructure, putting more resources in developing local skills, reducing bureaucratic red tape and curbing corruption. Importantly, SADC member states should avoid heated competition or “bidding wars” for FDI, where countries seek to outbid each other in offering fiscal and financial subsidies to attract foreign investors. Competition for FDI between neighbouring countries is not only wasteful and costly, but may also weaken regional co‐operation and integration. Co‐operation at a SADC level may therefore help avoid costly bidding wars.     

Building Complementarities in Africa between Different Development Cooperation Modalities of Traditional Development Partners and China

Abstract: China's relationship with Africa has grown exponentially over the last decade with US$95 billion in bilateral trade in 2008 and US$5.4 billion of Chinese investment in Africa for the same year. The growth of Sino‐African relations also has an impact on the role of traditional development partners in Africa in particular in the aftermath of the 2008 financial crisis, which has already led some traditional development partners to reduce their aid budgets and subsequently their Official Development Assistance (ODA) flows to Africa. The objective of this paper is to analyse different development cooperation modalities in Africa of traditional development partners and China. This requires identifying trends in aid, debt relief, general budget support, trade, preferential trade access, and investment flows of both traditional development partners and China. The paper advocates that complementarities can be built between these development modalities on a national, regional and global level. This would enhance development effectiveness, increase efficiency and create win‐win situations which would be beneficial to African countries, China and traditional development partners.     

Promoting of Investment in Africa*

Abstract: This paper examines the trend, constraints, promotion, and prospects of investment – domestic investment, foreign direct investment, and private portfolio investment – in Africa. After identifying the importance of investment in Africa's economic development, it was shown that all forms of investment are low in Africa and hence inadequate for the attainment of the MDGs and poverty reduction in the continent. The constraining factors include: low resources mobilization; high degree of uncertainty; poor governance, corruption, and low human capital development; unfavorable regulatory environment and poor infrastructure, small individual country sizes; high dependence on primary commodities exports and increased competition; poor image abroad; shortage of foreign exchange and the burden of huge domestic and external debt; and undeveloped capital markets, their high volatility, and home bias by foreign investors. The paper recommends that successful promotion of both domestic, foreign direct and portfolio investment in Africa will require actions and measures at the national, regional, and international levels. It concludes that the prospects are bright. New and attractive investment opportunities are emerging in infrastructure, particularly as most African countries now encourage public/private partnerships for investments in this sector. In addition to privatization, renewed interest within Africa in undertaking regionally based projects and joint exploitation of natural resources is creating other investment opportunities. Apart from the fact that investment in Africa yields the highest returns, investment risk in the continent is declining. In addition, much progress has been made in recent years to improve the investment climate in Africa. All this is of course is not to deny that obstacles do remain hence economic reforms to enhance domestic investment would need to be complemented by measures to attract increased foreign capital. Critical in such endeavors must be efforts to improve governance in some countries as well as to eliminate socio‐political violence in others and development of domestic capital markets, while government institutions must be modernized and upgraded.     

How Aid Tying Can Impose Additional Cost on Aid Recipients: Evidence on Ghana

Abstract: This study investigates the prices of tied foreign aid imports by estimating the price differentials between tied aid imports and non‐aid imports from bilateral sources to Ghana. The study finds a significant mark‐up on the prices of tied aid imports relative to non‐aid imports, which translates into substantial cost to Ghana. Several reasons, both in Ghana and in the donor countries, could be found for the estimated price differentials. Ghana needs to take steps to improve its investment climate, as a way of reducing investment risk, which in turn will enhance the confidence of export financiers to reduce the incentive to mark up prices of tied commodities. On the part of donor countries, there may be need to examine the market for the supply of aided commodities towards the liberalization of such markets. It is suggested that although the higher costs on tied imports may be a necessary price Ghana had to pay to obtain aid, the associated cost provides a case for the cancellation of the bilateral aid debt to Ghana.     

China＇s FDI Net Inflow and Deterioration of Terms of Trade： Paradox and Explanation

Starting from the contradiction between China's sustained growth in foreign direct investment (FDI) net inflow and deterioration of the terms of trade, this paper analyzes the characteristics of FDI sectoral structure since the 1990. Moreover, considering the international market competitive environment, this paper gives a concrete analysis of the influence mechanism and concludes that the flowing of FDI into labor‐intensive export sectors caused the deterioration of China's terms of trade. To improve its terms of trade, China needs to direct FDI inflow into capital‐ and technology‐intensive sectors and service sectors. (Edited by Xiaoming Feng)     

Foreign Direct Investment and Trade Openness in Sub‐Saharan Economies: A Panel Data Granger Causality Analysis

This study uses annual balanced panel data for 25 sub‐Saharan African economies over the period 1977‐2009 to investigate the Granger causality relationship between trade openness and foreign direct investment (FDI) for the region. We took advantage of recent developments in econometric testing techniques for Granger noncausality heterogeneous panels that takes into consideration the effects of cross section dependence across the units of the panel data set to analyse the trade–FDI nexus in the region. The empirical result of this study reveals a bidirectional causal relationship between trade openness and foreign direct investment in sub‐Saharan economies. Concurrently, African countries should devote more emphasis for the promotion and attraction of FDI in order to expand their productive capacity to produce and export; in this way, by addressing supply‐side constraints, FDI will have positive multiplier effects on trade.     

Technological Innovations in the Control of International Exchange: Lessons for Africa

Empirical studies on international trade highlight the role of innovation on international exchange but do not capture the effect of technological innovation when unobservable common factors (UCFs) are considered. This paper examines the long‐run relationship between technological innovation and international exchange using panel data for eight African countries over the period 1981–2013. The non‐stationarity and cointegration between technological innovation, international exchange, public investment, real gross domestic income and foreign direct investment were examined, controlling for cross‐sectional dependence and heterogeneity between countries. The results suggest that technological innovation in Africa remains low after controlling for UCFs, while public investment, real gross domestic product and foreign direct investment have significant impact on international exchange. Moreover, the results from the homogeneous and heterogeneous estimates, with and without UCFs, show that ignoring UCFs is likely to bias the coefficients. These findings reveal that African countries should invest more in public infrastructures and research and development to upgrade their capability To play an active role in the international market.     

Capital Inflows and Exports Diversification in Sub‐Saharan Africa during the MDGs Era

This paper explores the impact of different forms of capital inflows, including foreign direct investment, foreign aid, portfolio investment, and remittances, on exports diversification in sub‐Saharan Africa during the Millennium Development Goals (MDGs) era. We employ the Generalized Method of Moments (GMM) estimator to deal with the endogeneity issue. Using a sample of 35 countries over the period 2000–15, it shows that the impact of capital inflows on exports diversification depends on the type of capital. We find evidence that foreign aid, foreign direct investment, and remittances have positive effects on exports diversification, while portfolio inflows negatively affect exports diversification. Moreover, we find that the impact of capital inflows on exports diversification differs across the region of destination of the exported products. This study underscores the important role of international cooperation and capital inflows in sub‐Saharan Africa, and lends support to policies aiming to attract foreign capital.     

What can we learn on Chinese aid allocation motivations from available data? A sectorial analysis of Chinese aid to African countries

Since the creation of the Forum on China-Africa Cooperation (FOCAC) in 2000, Chinese official development assistance (ODA) to Africa has increased drastically. Only few analyses on the determinants of Chinese ODA allocation to African countries are available. Moreover, existing literature mainly focused on total aid flows while Chinese motivations for aid allocation might differ depending on the ODA sector considered. Our objective is to study the factors associated with Chinese aid allocation to African countries by sector between 2000 and 2014. We consider three ODA broad sectors as defined by the Organisation for Economic Cooperation and Development (OECD): the social infrastructure and services sector, the economic infrastructure and services sector and the production sector. Chinese ODA is measured using AidData's Global Chinese Official Finance Dataset, 2000–2014, Version 1.0. Over the 2000–2014 period, China allocated 971, 218 and 138 ODA projects to African countries in the social infrastructure and services sector, the economic infrastructure and services sector and the production sector respectively. Between 2000 and 2014, the economic infrastructure and services sector was the first sector in terms of ODA amount with a total of US$18.9 billion ahead from the social infrastructure and services sector with US$7 billion or the production sector with US$3.1 billion. Results of our analysis suggest that the motivations of Chinese aid allocation to African countries differ by sector. Chinese ODA in the social infrastructure and services sector appears more responsive to the economic needs of recipient countries but is also more driven by foreign policy considerations. Chinese economic interest, in particular for natural resources acquisition, is associated with China's ODA allocation in the economic infrastructure and services sector. Finally, while governance quality in recipient countries is not related to Chinese ODA in the social infrastructure and services sector, we find that China allocates more ODA in the economic infrastructure and services sector and the production sector to African countries with weaker institutions. One of the strong conclusions of this study is to show that considering only China's overall aid to Africa can be misleading as to its underlying determinants, and therefore to point out the need to disaggregate the analysis by ODA sectors.     

Trade facilitation in ASEAN countries: harmonisation of logistics policies

This paper studies the effectiveness of the implementation of trade facilitation measures in member countries of the Association of Southeast Asian Nations (ASEAN). We evaluate trade facilitation performance and indicate trade facilitation needs and priorities that vary between ASEAN members. In particular, we examine logistics‐related costs in ASEAN and whether the current level of logistics‐related costs could be a burden or an advantage for ASEAN countries. We also identify critical barriers that have impacts on logistics services related to foreign investment and customs across ASEAN. Finally, we propose recommendations for the harmonisation of logistics policies in ASEAN countries aimed at the development of the ASEAN Economic Community.     

Assessment of the effects of infrastructure investment under the belt and road initiative

Based on the estimated effect of infrastructure investment on total factor productivity (TFP) enhancing and trade costs reducing, this paper uses the data from Asian Development Bank to numerically assess the effects of Asian nations' infrastructure investment under the Belt and Road Initiative within the Global Trade Analysis Project (GTAP) model, and the results show that most countries or regions' economic growth, welfare, foreign trade, and trade terms are promoted in varying degrees. However, some countries (regions) have suffered. Additionally, the existing division of labor and trade patterns between developed economies and developing countries somehow consolidated because of changes in trade. In addition, China's industrial transformation and upgrading will benefit from the infrastructure investment under the Belt and Road Initiative, namely, the traditional industries slowdown or decline and high-tech manufacturing and service industries speed up, along with the optimization of factor allocation among industries.     

Measuring the Foreign Exchange Premium and the Premium for Non‐Tradable Outlays for 20 Countries in Africa

In this paper, we develop an analytical general equilibrium framework to measure the foreign exchange premium and the premium for non‐tradable outlays for a country. The framework allows us to capture in a consistent manner the impacts of the sourcing of funds and their expenditure on tradable and non‐tradable goods and services of investment projects. An application of the model is carried out for 20 countries in Africa. The results show that the foreign exchange premiums range from 2.4% to 9.0% and the premium for non‐tradable outlays from ?0.7% to 2.9%. The empirical values depend on a number of factors, including the indirect taxes, production subsidies and international trade distortions of a country. These premiums should be incorporated into the economic evaluation of investment projects.     

Is there a link between BRIC foreign direct investment and SADC export performance?

The BRICS (Brazil, Russia, India, China and South Africa) countries have agreed to strengthen their economic ties, thus paving the way for enhanced trade and investment performance. South Africa's strategic value in BRICS is that it is a gateway to the opportunity-rich Southern African Development Community (SADC). By using South Africa as a production hub for exports to the surrounding region, foreign investors would have ready access to neighbouring markets. This article addresses the question of whether, and in what ways, foreign direct investment (FDI) from the BRIC (Brazil, Russia, India and China) countries to the SADC influences the SADC's export performance. A series of empirical analyses revealed a positive causation between BRIC FDI and SADC exports, offering a clear incentive for the SADC to rejuvenate its trade and investment policies and structures, and strengthen its ties with BRIC countries in the interests of attracting more FDI and building a strong and sustainable export sector.