Abstract: This empirical study has examined the impact of Chinese investments, namely infrastructure, energy, services, other investment sectors, and trade openness on the economies of the 25 Asian and North African countries along with the Belt and Road (B&R) Initiative for a period of 2007 to 2016 using the Johansen Fisher Panel Cointegration Test, Panel Dynamic Ordinary Least Squares (PDOLS) model, and the Toda and Yamamoto technique for testing causality. The findings revealed cointegration among the variables and that the impact of Chinese investments on economic growth in the host countries is positive, but it has a weaker effect, to a certain extent, in all sectors of the host countries while trade openness positively impacts the countries. Furthermore, there is evidence of a unidirectional causality between some FDI (foreign direct investment) economies while the investment in services and other sectors does not cause economic growth in the host countries. Based on the results, the paper proposes that the host countries increase the FDI in the sector of infrastructure, energy, and technology to enhance their economies.
Keywords: outflow FDI; Belt and Road Initiative (BRI), DOLS; Toda and Yamamoto; economic growth; Asia and South Africa countries
1. Introduction
Foreign direct investment (FDI) is a cross-border investment by an occupant element in one economy to get an enduring interest in an enterprise’s inhabitance in another econ- omy [1]. FDI is recognized as an essential instrument for the development of worldwide capital streams. It is, additionally, one of the most applicable parts of the ongoing rush of globalization [2]. At present, attracting FDI is the top agenda for the emerging and developing economies. A striking element of the new globalization measure is the role played by multinational enterprises (MNEs) in creating work, development, profitabil- ity gains, and innovation moves, just as opening the door to superior reconciliation in global value chains [3]. Several researches have discovered that sustainable economic development improves the impact of FDI’s contingent on the host-nation environment [4]. FDI supports development using innovation dissemination if the host economy flaunts adequate absorptive limit [5]. FDI is a significant determinant of development and can have a positive impact when the domestic homegrown financial system is progressive, and FDI should be more gainful to developed economies [6].
The practice of FDI is quite old. Neither all the nations worldwide have been open to it, nor have they invited the conceivable outcomes of cooperation outside the world. China is one of those countries where foreign companies were only allowed to invest in it after the successful Chinese government opening policy in 1979. China had a considerable surplus in the capital and started outward foreign investment since 2000 [7]. China is trying to make better returns on its accumulated foreign reserves by its ambitious Belt
and Road Initiative (BRI) strategy, proclaimed in 2013. This development is considered to redesign policy to interface China worldwide near Central Asia, South East Asia, South Asia, East Africa, and East-Central Europe [8]. With the Belt and Road Initiative, China envisions goading territorial collaboration by utilizing China’s economic and financial force capacity for approximately almost 1 trillion USD for normal investments and trade. It not only interlinks China’s economy with South East and Central Asia but also links with the Middle East, Africa, and Europe. Starting now, China is the world’s most astonishing economy, subject to amount of national yield, and the World Bank’s purchasing power fairness considers in like manner the, when in doubt, most noteworthy energy creator, exporter, and customer. By 2020, China will change into the second of the world’s most noticeable abroad theorist as well. Its offshore resources may altogether increment from USD 6.4 trillion to almost USD 20 trillion [9]. As per MOFCOM (2008), Chinese non- financial FDI in Belt and Road Initiative nations amounted to $15.6 billion; it is generally 8.9% more from the previous year. Additionally, expanded FDI outpourings may be the eventual outcome of the Chinese government attempting to separate its foreign trade hold [10,11].
China is an arising and developing net outward FDI streams nation. China’s 16,000 multinational endeavors (MNEs) had set up roughly 22,000 foreign collaborators in 179 nations and districts [12]. China’s abroad record is ending up being reasonably historic all around the globe. At some spots in the degree of 2004 and 2013, China’s foreign investment broadened 13.7 events from $45 billion to $613 billion. For example, two Chinese state-guaranteed banks, China Development Bank and Cost Import Bank of China, begun dispatching their activities in 2010 and attributed more money dependably to other non-mechanical nations than the World Bank. In 2014, China started the BRICS Development Bank, Asia Infrastructure Investment Bank (AIIB), and the Silk Road Fund, addressing making a Chinese impact in the development account [12,13]. The Figure 1 reports Chinese investment in different sectors of the economy as follows:
Figure 1. Reports Chinese investment stated in USD million for 2005–2013 versus 2014–2018 by area in the worldwide economy and total national sum. Note: 2018 information is to end of June. Source: China Worldwide Investment Tracker Information base, which covers all investments of USD 100 million or higher. American Enterprise Establishment (AEI). Service of Business, Republic of China (MOFCOM) information sums are around 10% higher for a similar period because of little investments’ nook. Stat Link 2 http://dx.doi.org/10.1787/888933786439.
Chinese outward foreign direct investment has transformed after China’s changing economic necessities of late. Foreign organization investments have been separated into the standard of mechanical regions. Before 2014, half of the 468 billion USD was in the energy area, and 88.8 billion USD was in metals (around 68% of the aggregate). Land and cash were the third and fourth most fundamental investment regions in the last nine years. From 2015 to 2018, the proportion of investment is more basic than the first year’s
assessment of investment over the most recent nine years, and its piece has moved away from the energy, metals, and records to impressively more upgraded course of action of modern areas, for instance, agribusiness (seeds, agro-synthetic substances, and handling); advancement (essentially mechanical technology, clinical, distributed computing, imaging, and media interchanges); transport (fundamentally flight, transportation, and rail); the travel industry; land and the “other” characterization, for instance, customer products, and materials [13,14].
In general, this study examines sectoral analysis of the impact of Chinese outward foreign direct investment on the economic development of 25 Asian and North African countries alongside the Belt and Road (B&R) Initiative. This research study will also understand which sectors have a causal relationship to economic growth and determine this relationship’s direction after examining the causality links between the six variables (see Table 1). These causality connections are useful for leaders in host nations to decide the most possible investment areas for economic development. This present study’s outcomes are of extraordinary importance on the grounds that numerous scientists question the utility of China’s investment objectives added to the Belt and Road Initiative (BRI). It additionally expresses that there is no certain impact of Chinese investment on economic development, especially in agricultural countries. The Belt and Road Initiative (BRI) is consistently investigated as a ‘debt snare’ for the agricultural countries. It is completely declared that the BRI is prepared towards China’s overpowered domineering system [13].
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