The Role of Institutional Quality and Chinese Investment in Shaping GDP Growth in COMESA

Abstract: The aim of this study is to examine the mediating effect of domestic institutional quality on the relationship between Chinese foreign direct investment (FDI) and economic growth in COMESA (Common Market for Eastern and Southern Africa) countries. Utilizing a random effects model and annual time series data from 11 countries for the period 2003-2021, the study incorporates robust control variables and performs mediation analysis. Data on Chinese FDI stock was sourced from the China Africa Research Initiative, and GDP per capita growth along with control variables were sourced from World Development Indicators. Institutional quality, used as a moderator and proxied by economic freedom, was sourced from the Fraser Institute. Economic freedom encompasses five distinct areas: size of government, legal system and property rights, sound money, freedom to trade internationally, and regulation. Principal Component Analysis (PCA) yielded a KMO of 0.762, indicating that the economic freedom components effectively captured institutional quality.

The study found that Chinese FDI positively impacts GDP growth at a 5% significance level. Similarly, access to electricity is positively correlated with GDP growth at a 5% significance level. Trade and inflation have negative impacts on GDP growth at 10% and 1% significance levels, respectively. Other factors such as mobile cellular subscriptions, gross fixed capital formation, domestic credit to the private sector by banks, and government final consumption expenditure were statistically insignificant. Additionally, the interaction between Chinese FDI and institutional quality negatively impacts GDP growth.

To enhance GDP growth in COMESA, the study recommends strengthening institutional quality, improving infrastructure, maintaining macroeconomic stability, and liberalizing trade policies.

Keywords: Foreign direct investment (FDI); Economic Growth; Institutional Quality; COMESA; Random Effects Model.

Title: The Role of Institutional Quality and Chinese Investment in Shaping GDP Growth in COMESA

Author: CHIFUNDO MATOLA

International Journal of Novel Research in Marketing Management and Economics

ISSN 2394-7322

Vol. 11, Issue 2, May 2024 - August 2024

Page No: 57-79

Novelty Journals

Website: www.noveltyjournals.com

Published Date: 12-June-2024

DOI: https://doi.org/10.5281/zenodo.11617916

Paper Download Link (Source)

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