Since the 1980s, developing economies have experienced a substantial rise in foreign direct investment (FDI), primarily fuelled by the demand for reliable external capital because of insufficient domestic savings and recurring lending crises (Demirhan & Masca 2008). Foreign direct investment is often perceived as a crucial driver for economic development in these nations, promoting job creation, technology transfer and infrastructural advancement (Camarero, Montolio & Tamarit 2020). Consequently, developing countries now receive nearly half of global FDI (Forte, Teles & Santana 2023).

Like many other developing countries, Cameroon has acknowledged the pivotal role of FDI in fostering economic growth, particularly after enduring several financial challenges. These included the global financial crisis of 1981–1988, a sharp decline in crude oil prices, a drop in the prices of key agricultural exports and a shortage of funds needed to meet the Millennium Development Goals (MDG) (Akwaowo 2013; Ghura 1997). In response, Cameroon intensified its focus on attracting FDI following unsuccessful attempts at economic revival through currency devaluation, fiscal tightening, privatisation of state-owned enterprises and banking sector restructuring (Ghura 1997).

To enhance its appeal to foreign investors, Cameroon implemented several policy reforms and tax incentives (Njong 2008). Notable measures included the Investment Code of 1990, amended in 1994, and the amendment of the Patent Right Act in February 1999 (Forgha 2009; Njong 2008). Additionally, establishing the National Industrial Free Trade Zone in 1991 provided corporate tax holidays and lifted controls on exchange rates and profit repatriation (Zisuh 2001). In 2001, the Cameroonian parliament passed an investment charter committing the government to ensuring justice, combating corruption, protecting investors and their properties and eliminating bureaucracy and discrimination (Zisuh 2001).

These initiatives proved effective, and by 2009, Cameroon had secured substantial FDI, with the average annual FDI inflow reaching $337 million that year (Akwaowo 2013). France and the United States (US) became key sources of FDI, with one of the US’s notable investments in sub-Saharan Africa being the Chad–Cameroon pipeline (Forgha, Ngong & Lionel 2016). Other countries such as China, South Korea, South Africa, India and Morocco also made significant contributions to FDI in Cameroon (Forgha et al. 2016). The emphasis on promoting FDI is further justified by evidence that it enhances economic development in Cameroon, especially through job creation (Ngouhouo & Nchofoung 2021). Despite past successes, Cameroon has recently experienced a slowdown in FDI inflows (Djomo et al. 2017). According to a United Nations Conference on Trade and Development (UNCTAD) (2023) report, Cameroon lags behind several other African countries, including Ghana, Ivory Coast and Senegal, in attracting general FDI inflows. This situation is perplexing, given studies by Al-Fadhat and Prasetio (2022) and Nghan (2017) that highlight Cameroon’s potential to attract FDI because of its abundant natural resources, renewable energy potential and strategic position in Central Africa, providing access to landlocked Central African countries. The slow growth in FDI poses a significant challenge for Cameroon, which relies heavily on FDI to fund economic development (Nghan 2017). In response, China has shown considerable interest in strengthening ties and promoting FDI growth in Cameroon. On 23 March 2018, in Beijing, China’s Premier Li Keqiang and Cameroon’s President Paul Biya reached agreements on cooperation in technology, industrial growth, workforce development and infrastructure projects (Mengjie 2018).

However, the intention to boost Chinese FDI in Cameroon has elicited mixed reactions. While China’s contributions to infrastructural development, such as road infrastructure, dam construction and seaport projects, are acknowledged (Al-Fadhat & Prasetio 2022; Mayers, Nguiffo & Assembe-Mvondo 2019), there are concerns raised by the Cameroonian coordinator of the Forest and Rural Development Association (FODER) regarding environmental damage and safety hazards from illegal mining by Chinese nationals (Marsh 2019). Al-Fadhat and Prasetio (2022) also highlight potential debt traps because of the structural power imbalance between China as an investor and Cameroon as a recipient. Nghan (2017) further notes criticisms around the lack of social responsibility and poor wages paid to local workers by Chinese firms. These controversies are not unique to Cameroon; Brautigam (2020) notes that Chinese FDI in Africa often diverges from conventional Western approaches by investing in poorly governed, resource-rich countries. These issues raise questions about the actual determinants of Chinese FDI in Cameroon.

Numerous theories and empirical studies have explored the factors determining FDI (Asiamah, Ofori & Afful 2019; Nguyen 2021). Among these, locational determinants at the macro level are considered primary sources of a country’s comparative advantage in attracting FDI (Petrović-Ranđelović, Janković-Milić & Kostadinović 2017). However, conflicting findings from studies such as those of Camarero et al. (2020) and Korsah, Amanamah and Gyimah (2022) suggest that there are no universally accepted sets of macro-locational determinants of FDI. Furthermore, despite the controversies surrounding Chinese FDI, research on its determinants, especially in Africa, is limited. Studies by Tuman and Erlingsson (2020) and Utesch-Xiong and Kambhampati (2022) reveal significant discrepancies in the macro-locational determinants of Chinese FDI across different host countries. This necessitates establishing country-specific determinants of FDI and identifying determinants specific to the investing country.

This study aims to identify and ascertain the macro-locational determinants of Chinese FDI in Cameroon, considering both the positive assertions and criticisms of Chinese involvement. This study is based on the premise that a better understanding of the determinants of Chinese FDI will enable Cameroon to strategise more effectively, minimising negative aspects and maximising benefits. This aligns with the findings of Weng, Sayer and Xue (2017) that advancing economic cooperation with China offers significant potential benefits for Cameroon but also poses risks and challenges. Additionally, by incorporating variables such as political stability, this research seeks to clarify debates regarding its importance for Chinese FDI, a much-debated issue in the literature (Brautigam 2020; Kolstad & Wiig 2011).

This research contributes to policy development and seeks to fill a notable gap in the existing literature, as studies have yet to specifically examine the macro-locational determinants of Chinese FDI in Cameroon. It rigorously evaluates established FDI theories to determine whether the locational determinants affecting Chinese investment in Cameroon are in accordance with conventional FDI theories. By clarifying these issues, this study aims to enhance Cameroon’s ability to leverage Chinese FDI for sustainable economic development while mitigating potential risks.

The subsequent section presents a comprehensive review of both theoretical and empirical literature, alongside the development of hypotheses. Following this, the research methods, procedures and techniques employed in the study are detailed. The findings from the empirical analysis of the determinants influencing Chinese FDI in Cameroon are then reported and critically examined. This is concluded with a discussion of the study’s limitations and suggestions for future research endeavours.

The Organisation for Economic Cooperation and Development (OECD 2023) defines FDI as an investment that entails an investor establishing a long-term interest and exerting significant control over a business in a different nation. Akwaowo (2013) elaborates that this lasting interest implies a long-term association between the direct investor and the investment enterprise. Fundamentally, FDI entails residents from one country owning assets abroad with the primary aim of controlling these assets (Alfaro & Chauvin 2017). Additionally, FDI can occur when a foreign corporation establishes a subsidiary in another country to market its products and services.

Foreign direct investment can occur in various forms, such as greenfield investments, which involve constructing new production plants in the host country or brownfield investments, which involve acquiring existing firms through mergers and acquisitions (M&A) (Alfaro & Chauvin 2017). Greenfield investments are more prevalent in developing countries compared to developed ones, although M&A activities, including privatisations, are also significant in developing nations (Alfaro & Chauvin 2017).

The importance of FDI, particularly for developing countries, lies in its role as a conduit for capital, knowledge and technology transfer, as well as access to brand names and marketing advantages (Pacific, Sunday & Lucy 2015). Foreign direct investment is distinguished from portfolio investments by the degree of control it confers; while FDI involves actual operational control, portfolio investments typically do not grant controlling stakes (Pacific et al. 2015). Moreover, FDI is generally preferred over portfolio investments because of its lower volatility and greater resilience to economic fluctuations in host countries.

Research interest in FDI surged as the concept became popular, leading to several theories explaining why firms engage in FDI. Buckley et al. (2007) argue that a thorough understanding of these theories, particularly those focusing on Chinese FDI in Africa, can highlight any gaps between theoretical predictions and practical outcomes. More specifically, the following theories are explained next, namely the Eclectic paradigm, Industrial Organisational Theory, Location Specific Theory, the Firm Specific Advantage and Country Specific Advantage (FSA-CSA) framework and the Theory of Competitive Advantage.

Dunning’s (1987) Eclectic paradigm is a key theoretical framework for understanding FDI. By synthesising multiple FDI theories, it offers a comprehensive approach to explaining why firms invest abroad, how they choose to enter foreign markets and the conditions required for successful operations (Dunning 1987). The paradigm highlights three key drivers of FDI: ownership advantage, internalisation and location advantage (Dunning 1987). It also distinguishes between two groups of FDI determinants: firm-specific factors at the micro level, such as ownership and internalisation advantages, and country-specific factors at the macro level, known as locational advantages (Petrović-Ranđelović et al. 2017).

Ownership advantages, as outlined in the FSA-CSA framework, represent the intangible assets and resources a firm holds such as financial resources, qualified workforce, technological capabilities, intellectual property and leadership skills that enhance its competitiveness abroad (Nielsen, Asmussen & Weatherall 2017). According to the Eclectic paradigm, firms leverage these advantages through FDI to capitalise on market inefficiencies (Petrović-Ranđelović et al. 2017). Internalisation, in contrast, involves firms maintaining control over these assets instead of granting licensing to foreign firms to maximise their benefits (Dunning 1987). This concept aligns with the Industrial Organisation Theory, which posits that firms prefer to exploit their specific advantages through FDI in the face of market imperfections (Dunning 1987). Therefore, while the ownership advantage explains why firms engage in FDI, internalisation explains how to enter a foreign market.

Location advantages, central to this study, encompass a range of socio-political and economic conditions that impact a firm’s choice to invest in a particular location. These factors include political stability, market size, production costs, infrastructure, trade barriers and a favourable competitive environment (Nielsen et al. 2017). The concept of location advantage aligns closely with the Location Specific Theory and the FSA-CSA framework, highlighting the importance of factors such as natural resources, labour costs, trade openness or trade barriers and market size (Rashidin et al. 2020).

The importance of the various locational factors is based on various reasons. Natural resources reduce production costs by situating factories close to raw material sources, attracting resource-seeking FDI in developing countries (Akwaowo 2013). Chinese FDI, driven by China’s economic growth needs, often targets resource-rich countries (Tuman & Erlingsson 2020). On the other hand, infrastructure is a significant determinant for attracting FDI, as good transport networks, electricity and communication facilities enhance productivity and reduce costs (Shahbaz et al. 2021). Market size also plays a vital role, as larger markets attract FDI, especially in services industries (Amponsah, Garcia-Fuentes & Smalley 2020). Trade openness indicates the ease of conducting international trade and attract FDI. Nonetheless, trade barriers can also serve as a magnet for FDI, particularly for market-seeking investors who are drawn to regions with high trade restrictions (Sabir, Rafique & Abbas 2019). Additionally, political stability is pertinent for creating a favourable investment environment, as political instability increases the risk associated with FDI (Mourao 2018). A favourable competitive environment, characterised by economic stability and reflected in factors such as inflation and interest rates, is essential for attracting FDI. High inflation rates create uncertainty (Buckley et al. 2007), while stable or low-interest rates encourage investment by reducing costs (Mujahid, Noman & Nargis 2019).

In addition to the locational factors highlighted in the Eclectic paradigm and related FDI theories, exchange rates play a crucial role in economic stability, as suggested by exchange rate-focused theories. Aliber’s hypothesis (1971, cited in Nayak & Choudhury 2014) suggests that firms in countries with strong currencies tend to invest in nations with weaker currencies to capitalise on higher market valuations. Conversely, Froot and Stein’s (1991) model contends that currency depreciation reduces acquisition costs for foreign assets, potentially boosting FDI.

Porter’s (1990) Theory of Competitive Advantage offers a different perspective, positing that a nation’s competitive edge is determined by the innovation and productivity of its industries rather than by its natural resources or currency value. This theory suggests that a country’s competitiveness and labour quality should positively influence FDI. Abbas, Moosa and Ramiah (2021) argue that a highly skilled labour force fosters increased productivity and facilitates faster technological adoption. The macro-locational determinants for FDI used in this study are summarised in Figure 1.

As illustrated in Figure 1, the diversity and uncertainty surrounding FDI create a complex landscape for identifying the specific macro-level factors that influence investment decisions, particularly in the context of Cameroon. To establish a robust foundation for hypothesis development, it is essential to review empirical studies that have examined the significance of these factors in various countries, especially developing and African countries.

Various studies have been carried out to evaluate the importance of macro-locational determinants of FDI, with varying results across different contexts.

Using a sample of Sub-Saharan African countries, Makonda and Ngakala (2021) found that natural resource availability significantly attracts FDI inflow. This also holds for Chinese FDI, as evidenced by studies such as those by Kolstad and Wiig (2011) and Utesch-Xiong and Kambhampati (2022).

The significance of infrastructure has yielded mixed results. While Emako, Nuru and Menza (2022) found that infrastructure positively influences FDI inflow into developing countries, Wagner and Delois (2023) observed that infrastructural challenges did not deter FDI inflow in India. More specifically, Utesch-Xiong and Kambhampati (2022) noted Chinese FDI for infrastructural development in resource-rich countries. Forgha et al. (2016) found that increased infrastructural development attracted general FDI inflow to Cameroon.

The importance of market size has yielded more consistent results. Amponsah et al. (2020) identified market size as a crucial factor influencing FDI in sub-Saharan African countries. Regarding Chinese FDI, both Mourao’s (2018) and Utesch-Xiong and Kambhampati’s (2022) findings support the argument that market size significantly influences Chinese FDI in Africa, given China’s strategy to expand its market presence abroad.

The relationship between trade openness and FDI in Africa remains contentious. While Forte et al. (2023) and Korsah et al. (2022) reported that trade openness positively influences FDI in African countries, Lee et al. (2022) observed no significant effect of trade openness on Chinese FDI in Belt and Road Initiative nations. Contradicting these findings, Forgha et al. (2016) reported that increased openness actually reduced FDI inflow in Cameroon.

The importance of political stability varies across regions and time periods. Bouchoucha and Benammou (2020) found that African countries with low political risk attract FDI, while Bhujabal, Sethi and Padhan (2024) observed that institutional quality entailing political stability attracted FDI inflows in South and Southeast Asia. In Cameroon, Forgha et al. (2016) observed that political stability increased general FDI inflow from 1975 to 2015. However, Saha, Sadekin and Saha (2022) found no impact of political stability on FDI for developing economies, including Cameroon, over the period 2002–2018. For Chinese FDI, the importance of political risk is less clear. Kolstad and Wiig (2011) and Utesch-Xiong and Kambhampati (2022) assert that Chinese FDI is drawn to African countries with high political risk. Lu et al. (2014) expanded on this finding, noting that this preference for high-risk environments is more evident in developing nations compared to their developed counterparts. Conversely, Mourao (2018) found that heightened political risk significantly deterred Chinese FDI in a sample of African countries from 2003 to 2010.

The results regarding the importance of economic stability variables have been mixed, often contradictory to the relevant theories, especially in terms of the exchange rate. Nguyen (2021) and Sabir et al. (2019) found that higher inflation rates negatively impacted FDI inflows into Vietnam and developing countries, respectively. On the contrary, Korsah et al. (2022) found that inflation was not a significant determinant of FDI in West African countries. Similarly, Utesch-Xiong and Kambhampati (2022) found no significant influence of inflation on Chinese FDI in Africa. Regarding exchange rates, Djomo et al. (2017) observed a negative impact of exchange rate appreciation on agricultural growth and FDI in Cameroon, whereas Korsah et al. (2022) observed the opposite effect in West African countries. For Chinese FDI, Munjal, Varma and Bhatnagar (2022) note that a stronger domestic currency positively influenced Chinese FDI inflows in a sample of African countries. Research on interest rates is more limited, with Asiamah et al. (2019) finding a negative association with FDI in Ghana and Chandra and Handoyo (2020) reporting no significant effect in a sample of Asian countries.

Recent studies (see Abbas et al. 2021; Gold, Rasiah & Teng 2019; Wagner & Delois 2023) equally report consistent positive associations between the quality of human capital and FDI. Abbas et al. (2021) found that the availability of skilled labour significantly influenced FDI in developing economies. Wagner and Delois (2023) observed that India’s shift towards a knowledge economy with technological skills greatly attracted FDI. For Chinese FDI, Gold et al. (2019) reported a positive association between Chinese FDI and the quality of human capital in African countries.

Considering the limited research on the role of competitiveness of a country in attracting FDI, this study aims to investigate its significance in Cameroon as a contribution to the literature. In summary, given the conflicting findings in the existing literature on the factors influencing general FDI and Chinese FDI, further empirical analysis is necessary to establish the significance of macro-level determinants in Cameroon. Based on these considerations, the following hypotheses were formulated:

The following section discusses the research methods, procedures and techniques used in this study to explore these determinants comprehensively.

The study examined the significance of proposed macro-locational determinants of Chinese FDI using quarterly data from 2003 to 2017. Johansen cointegration testing and VECM modelling were employed, and the findings indicate a statistically significant positive relationship between Cameroon’s market size, competitiveness and Chinese FDI in the long run. Additionally, a statistically significant negative relationship was found between interest rates, the discount rate and Chinese FDI. The relationship between trade openness and Chinese FDI was ambiguous. These significant findings generally align with empirical literature and relevant FDI theories, including the Eclectic Paradigm, Location Specific Theory, Aliber’s Hypothesis and Froot and Stein’s model and the Theory of Competitive Advantage. The study contributes to understanding the key factors influencing Chinese FDI in Cameroon and highlights policy areas for improvement. This study also contributes to the existing body of knowledge on macro-locational determinants of FDI, particularly given the limited studies available on these determinants concerning Chinese FDI in African countries and, more specifically, in Cameroon. It provides empirical evidence supporting theoretical predictions regarding the impact of market size, the level of competitiveness of a country, interest rates and discount rates. The findings highlight the need for further research to clarify the relationship between trade openness and Chinese FDI and the need for a longer time period to undertake further analysis.

To enhance the country’s chances to attract FDI, the Cameroonian government’s policies to attract FDI should extend beyond tax concessions and include collaboration with the centre bank, Banque des Etats de l’Afrique Centrale (BEAC) to target and monitor the exchange rate to ensure stable exchange rates. Local councils and municipalities should consider computerising systems for store rentals, tax payments and ticket sales to reduce corruption and enhance market accessibility. Additionally, investment in infrastructure, particularly in safe electrical connections and expanding market spaces, is essential to ensure safety and avoid loss of property and accommodate traders, including those from other Central African countries. Further, the government must focus on enhancing competitiveness by providing quality education and relevant skills to young Cameroonians. This includes shutting down non-accredited institutions, providing financial resources for educational technology and continuously reviewing curricula, with significant investment in vocational and technical education. Financial institutions should offer competitive or low-interest rates to attract private firms and FDI, particularly Chinese firms accustomed to low rates from China’s Exim Bank. This would boost lending and contribute to economic growth. Finally, the government should carefully monitor trade openness to maintain a balance that is conducive to attracting FDI.

The limitations of this study provide opportunities for further research. Specifically, the results of the multiple regressions could be improved by extending the analysis period, improving the data quality and considering other variables, such as financial development indicators, including those that could not be tested in the current study.