The Effect of Chinese and Korean Foreign Direct Investment on the Southern African Development Community

Abstract

Asian investment in Africa has been on the rise within the past decade as countries like China seek to bolster their economic and political presence on the continent. This growing partnership has received both positive and negative attention, with some critics claiming that Asia’s involvement with Africa is simply a newer version of imperialism and exploitation exhibited by former colonial powers such as the West. Using panel data from 2003 – 2012, this paper analyzes the impact of Chinese and Korean foreign direct investment (FDI) on the economies of countries within the Southern African Development Community (SADC) through focusing on two measurements: export diversification and economic growth. I find that Chinese FDI has a significant positive effect on the product diversification of exports and overall economic growth of countries in the SADC, while Korean FDI has a significant positive effect on product and market diversification of SADC exports. I also find that Chinese FDI has a negative but insignificant effect on export market diversification while Korean FDI has an inconclusive effect on economic growth. Such findings show that rather than being purely exploitative, Asian FDI can actually be complementary to growth strategies for developing countries and therefore should be encouraged provided that it is geared towards initiatives that support export diversification and other means of economic growth.