Analyzing the impact of china's foreign direct investment on the economic growth of the eastern africa countries

Abstract

This study analyzes the impact of China's Foreign Direct Investment (CFDI) on economic growth in 11 East African countries over the period 2003–2022, based on the Neoclassical growth theory. Using panel data econometrics, it compares Pooled OLS, Fixed Effects (FEM), and Random Effects (REM) models. Although diagnostic tests initially supported the FEM model, the presence of serial correlation and heteroskedasticity led to the adoption of the dynamic GMM approach. Results indicate that a 1% increase in the growth of Chinese FDI leads to a 0.027% rise in GDP per capita in the following year. The study concludes that Chinese FDI significantly contributes to economic growth in East Africa, supporting policies aimed at attracting and effectively managing such investments.