Chinese FDI and Debt-trap Diplomacy

Sammanfattning: This empirical study seeks to initiate a new field of study. Through panel data analysis the relationship between Chinese FDI, non-Chinese FDI, and government debt in Sub-Saharan Africa is investigated. The model is expanded to include resource endowment and political stability variables. This is contextualized with the narrative of debt-trap diplomacy. This controversial notion is relatively well-trodden ground in the literature, however, not in the context of FDI and its effect on government debt. The panel consists of 46 countries, over the period 2003-2019. Granger Causality testing is employed. The result shows positive effects on government debt from Chinese FDI and a negative effect on non-Chinese FDI. Where a negative effect is expected. The positive effect is increased both in the case of natural resources and political stability. The conclusions drawn from the study are; that the effects of Chinese FDI are different from non-Chinese FDI and that there seems to be a link between higher effects on government debt and resource endowment and political stability. This does support the nation of debt-trap diplomacy, however, this study alone is certainly not able to confirm or deny its existence.