How would legal systems affect US and Chinese foreign direct investment in Africa? An exploration of the roles of origins, customary law, and legal integration

ABSTRACT

As the first and second largest economies, the United States and China are among leading investors in Africa. Given their differences in economic systems and political institutions, a natural inquiry would be what drives both countries’ continuous investment in this continent. Previous scholars focused on macroeconomic, resources, and political factors. From our perspective, the legal system is deep-rooted and align with the lasing-interest character of FDI, which might unlock a promising space to understand the determinants of FDI in Africa. We proposed that legal systems would impact FDI through property protection, dispute settlement, and cross-border transactions cost reduction, which would take effect through general legal origins, customary law, and legal integration, respectively. Based on our sample containing 43 countries between 2007-19, we find that African’ legal heritage tends to play important roles in affecting U.S. and Chinese investors’ economic engagement with the continent.

KEYWORDS:

• Africa
• foreign direct investment
• legal origins
• customary law
• legal integration

JEL CLASSIFICATION:

• F2

Disclosure statement

No potential conflict of interest was reported by the author(s).