Introduction explore these motives in my final dissertation

Introduction  

 

In the
recent decade, the world’s second-largest economy China progressed from a
net-receipt to become one of the largest net aid donors in Sub-Saharan Africa
challenging the Western official development assistance (ODA) of the
Organisation of the Economic Cooperation and Development (OECD) countries. Whilst
significant research exists in the field of development economics on the
following question of the relationship between the Chinese aid and FDI
allocation in Sub-Saharan Africa. There is a lesser emphasis on the prime motives
behind these patterns of allocation by the Chinese government. I seek to
explore these motives in my final dissertation and will shed some light on the
characteristics of the China’s rapidly growing economic ties with sub-Saharan
African.

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Section 1: Literature
review

 

There
has been a vast amount of literature by numerous authors pertaining to the
topic dating as early as the 1970s. An early paper in this field of literature
by Cai (1999) states Chinese FDI patterns overseas tend to be market seeking
interests which includes acquiring resources, technology and minerals. Morck,
Yeung and Zhao (2008) suggest that Chinese firms are better in dealing with a country
system which have been operating in inefficient domestic institutions and that
there is particularly a strong interest in a politically unstable environment
and as such allocate the FDI and aid accordingly. A paper by Oliver M. and Evious
Zgovu (2011) review the trading relationships based on Harmonized system (HS)
Classification and add a really important insight emphasising that it is
difficult to clearly distinguish FDI and aid patterns in Sub-Saharan Africas;
as numerous activities of China combine an element of both.

 

One of
the prominent paper in the field by Kafayat A. and Nara M. (2016) explore the
field of the extant literature on the receipt need model and, donor interest
model as basis supposition to analyse the China aid allocation patterns in Sub-Saharan
Africa.  The receipt-need model focuses
on the aid allocation as a result of the observed need for the receipt. The
determination of the aid allocation dates as far back to Maizels and Nissanke
(1984), Gang and Lehman (1990). The main findings of the paper involve the
underpinning factor that is mineral resource rich countries notably Nigeria,
Ghana and Sudan, are an important factor in the Chinese allocation patterns.

These three countries combined, for example, receive around 250 Million US
dollars in aid, the majority of which go into the energy infrastructure such as
oil pipelines (Strange (2013). The paper puts emphasis on how the boost in Chinese
domestic economic growth further drives China’s interest in the Sub-Saharan
Africa’s natural resources. Giorgia G. and Marco Sanfilippo (2009) a paper published
in European Journal of Development Research emphasise rather similar results. The
paper uses a disaggregated econometric data approach using the 6-digit level Harmonized
system (HS) Classification for the period of 1995-2005. The paper reveals evidence
of the displacement effect of the Chinese FDI allocation patter based on the product,
sector, region and at also at the market level.

 

 

The very recent literature by Tobias Broich and Adam
Szirmai (2016) conclude that the sectoral distribution of the Chinese
allocation patterns resembles the earlier patterns of the western counterparts
during the period of 1960s and 1970s which involves investing in the economic infrastructure
projects (Appendix 1.1). The authors’ main finding is that the China’s established
relationships with many African countries have been purely political for garnering the support for the One China Policy
(Wenping, 2007). The absence of diplomatic relationships with Taiwan has been a
precondition for any fruitful diplomatic relations with Beijing (Brautigam,
2009). This involved various instances of historical cut off of diplomatic ties
and termination of the aid to a certain country if it establishes diplomatic
ties with Taiwan.

 

 

 

Data and Methodology

 

As the
main aim of the dissertation is to determine the Chinese aid allocation
patterns, the main data being used will be from the UNCTAD Economic development
in Africa Report and UNCTAD World Investment Directory (UNCTAD/ITE/IIT/2007/5).

I explore the question both empirical and theoretical model which exists on the
topic.

 

 

 

In
addition to the above analysis, some tests need to be run to determine whether
my regression is a good estimate:

 

1)   
T-tests for each variable
to test their individual significance. For example, testing the null hypothesis
of Aid, H0: b1=0,
against an alternative hypothesis, H1: b1¹0. If
the resulting p-value is less than the significance level of 0.05 would result
in rejection on the null hypothesis, hence we can conclude that there is a
significant relationship between Aid and growth rate of GDP per capita, at a
95% confidence level.

2)   
F-test to test for the
joint significance of all variables in the regression. This would be testing
the null hypothesis, H0: b1=b2=b3=…=0, against the alternative hypothesis, H1:
not all bi=0. Then we compare the F-statistic with the critical
value at a 5% level. We would reject the null hypothesis if the F-statistic is
higher than the critical value, asserting the joint significance of the
explanatory variables.

3)   
Value of the R2
to determine how well our explanatory variables explain the dependent
variables. The higher the R2, the higher the predictable component
of our independent variables, confirming the reliability of our estimated
model. 

 

Concluding remarks 

 

The
structure of the dissertation will closely follow the outline of the proposal.

The introduction shall consist of the key concepts of my dissertation, in
tandem an explanation on why I will be looking at China and its FDI patterns in
Sub-Saharan Africa. I will also be explaining how the paper will contribute to
the existing literature and then the literature review. Followed by explanation
of my theory and methodology used for the regression analysis. Finally, I will
analyse the data and the results which will thus form part of my conclusion and
will look at potential future studies.   

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