Do Chinese Infrastructure Loans Promote Entrepreneurship in African Countries?

Image: Flickr, Aleksandr Zykov
Image: Flickr, Aleksandr Zykov

Chinese loans to Africa have been on an upward trajectory for more than a decade. Figure 1 chronicles this growing dependence in the average African loan recipient, where the value of total loans from China rose sharply from about US$ two million in 2000 to a peak of about US$ 552 million in 2016.

From a development perspective, this raises questions about the economic consequences that large scale borrowing from China has on African economies. One important question that I investigate relates to the impact that Chinese loans disbursed to finance economic infrastructure have on entrepreneurship. As illustrated by Figure 1, infrastructure loans account for a significant share of China’s lending to Africa, which increased significantly from 18 percent to 60 percent in the average African recipient country between 2000 and 2016. I find that African countries with a higher percentage of economic infrastructure loans have greater entrepreneurship in the form of new business startups. Specifically, increasing the total economic infrastructure loan amount (expressed as a percent of the recipient’s gross domestic product — GDP) by one percent is on average associated with a 3.6 percent increase in new business startup activity.

1 Jan 2021