Does Chinese FDI inflow into Africa influence Inflation in the African Economy
Abstract
For several decades, most disruptions and failing macroeconomic stability have been attributed to endogenous drivers. The rapid increase in Chinese FDI raises concern for indigenous firms, even though a few have argued that foreign firms compete with foreign firms in isolation from the indigenous firms. Heavy expenses on foreign products for a continent whose place in the supply chain is primarily raw materials and not finished goods implies paying heavily for payment and exchanging local currency for dollars. This impliedly means rise in inflation due to the importation cost. This study employed the generalised method of moments (GMM) to investigate Chinese FDI inflow into Africa and its effect on macroeconomic stability (inflation). This study employed a panel data set of forty-two (42) African countries spanning 2016 to 2023. The findings show that Broad money is negative at 10% level, indicating that it does not affect inflation. However, government revenue has a negative effect on inflation, indicating that it reduces inflation at 1% level of significance. Gross fixed capital formation is positive at 1% level of significance, indicating that it stimulates inflation. The coefficient of Chinese FDI is also positive at 1% level of significance, indicating that it increases inflation. U.S export has a negative effect on inflation at 5% level of significance.
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