The Role of Asian Investment in Manufacturing in Catalyzing Economic Development in Africa

This project aims to quantify the relationship between Foreign Direct Investment and domestic firm development by building on an existing study of Chinese and Indian investment in the processed leather sector in Ethiopia. 

International Food Policy Research Institute
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Historically, the transfer of innovations and ideas from one country to another through Foreign Direct Investment has often served as a stimulus for local firms to adopt new practices. Innovations may spread to local firms through imitation, “poaching” of skilled workers, subcontracting, and other linkages. This project builds on a previous scoping study of Chinese and Indian engagement in the processed leather sector in Ethiopia by investigating the dynamic impact of FDI in five African countries.

The research team will study FDI spillover effects through several rounds of surveys in Ethiopia, as it is experiencing significant Asian manufacturing engagement, and expand the scoping study to four other countries: Nigeria, Ghana, Kenya, and Zambia. Through the surveys, they will investigate the ways in which Asian buyers and factories connect with Ethiopian producers and the effect of export bans and export taxes on technology transfer between foreign and domestic firms in Ethiopia.

This research will allow for a quantification of the impact of FDI on technology transfer, competition, prices, and employment. As such, it will have significant implications for investment policy, enabling governments to more effectively promote domestic firm development.