Governance, Foreign Aid, and Chinese Foreign Direct Investment

Roger Fon and Ilan Alon
Publication Date: 
February 11th, 2022

This article explores the interaction between Chinese foreign aid in shaping Chinese state-owned enterprises’ (CSOE’s) foreign direct investment (FDI) in Africa and the quality of host country’s governance. It finds the quality of governance in the host country has a negative impact on CSOEs’ FDI and official aid and loans from China are detrimental to the relationship between the quality of host country governance and CSOE FDI. In short, CSOE FDI in locations with weak governance increases when it is integrated with less concessional Chinese foreign aid. This article challenges arguments postulating positive links between governance quality and FDI attractiveness.

This publication originally appeared as Roger Fon, Ilan Alon, “Governance, Foreign Aid, and Chinese Foreign Direct Investment,” Thunderbird International Business Review, Vol. 64, No. 2 (February 2022), pp. 1–23. Copyright remains with the original holders.