The effects of China's aid and trade on its ODI in African countries

This paper examines the effects of China's aid and trade on its overseas direct investment (ODI) in 50 African countries from 2002 to 2013. We find that exports of natural resources significantly increase China's ODI; this suggests that China's ODI is “vertical.” Despite this, the relationship between aid and ODI varies according to different types of aid. Aid invested in social and economic infrastructure raises ODI, and the marginal effect diminishes as aid increases. Aid invested in the productive sector and the government, however, negatively impacts ODI, thereby suggesting that China's aid will crowd out its investment in these countries.