Macro-locational determinants of Chinese foreign direct investment in Cameroon

Abstract

Background: Macro-locational determinants of foreign direct investment (FDI) constitute a country’s comparative advantage in attracting FDI. Although literature identifies potential determinants of Chinese FDI, empirical studies reveal significant variation across countries, necessitating investigation of specific macro-locational factors in each context.

Aim: Despite its abundant resources and reliance on FDI for development, Cameroon has experienced slow FDI growth. Efforts to enhance trade and investment relations between Cameroon and China make an understanding of Chinese FDI drivers crucial for policymakers. This study aims to ascertain the significance of macro-locational determinants in attracting Chinese FDI to Cameroon.

Setting: The study uses quarterly data on proposed macro-locational determinants of FDI from 2003 to 2017.

Method: Data were obtained from credible databases and reports. The study employs time series data and uses the Johansen approach and vector error correction modelling for analysis.

Results: Findings indicate a statistically significant positive relationship between Chinese FDI and Cameroon’s market size and competitiveness. A significant inverse relationship was found between exchange and interest rates and Chinese FDI. Trade openness had a small but ambiguous effect on Chinese FDI.

Conclusion: The results align with FDI theories though not all proposed determinants were significant for Chinese FDI in Cameroon. To attract FDI, Cameroon must expand its market, stabilise exchange rates and maintain competitiveness, especially through skills development. Financial institutions should provide competitive interest rates to promote private-sector borrowing.

Contribution: This study enhances the understanding of the key factors influencing Chinese FDI in Cameroon and contributes to the limited research on macro-locational determinants of FDI in Africa.