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

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.