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AFRICA
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S
SILK ROAD:
CHINA AND INDIA
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S NEW ECONOMIC FRONTIER
buyers
in cross-border transactions, but reducing more general business-related transactions costs, which improves the productivity level of domestic producers.
Trade and Investment LinkagesWhat linkages exist between FDI inflows to and exports from African countries?
How do these linkages compare with those that might exist for Asian countries?
Based on the gravity model incorporating the stock of inward FDI as one
of the explanatory variables, FDI in African countries appears to be complementing rather than substituting for bilateral export flows (table 2.8). In the case of the
Asian countries, the estimates also suggest complementary
effects between FDIand exports. In both cases, greater stocks of FDI are associated with higher exports. While recognizing the variation among individual countries in Africa,
for the
African countries as a whole, the effect is more muted than it is for Asian countries. However, among non-oil-exporting African countries, the complementary effect is actually stronger than that for the Asian countries.
These findings suggest the existence of an important relationship between trade and FDI flows in Africa as well as in Asia. Not surprisingly,
in the context of trade and investment
between these two regions, this linkage has various dimensions. In particular, attracting FDI from Asia (as well as from elsewhere) to Africa appears to bean effective route to boosting African exports. Detailed analysis of these types of linkages and their implications for African development is the focus of chapter 6.
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