Introduction

The institutional and market environments of African economies differ markedly from those of Asia and Europe. Many African countries experience recurrent ethnic and religious conflicts, frequent political transitions, and persistent social instability (Khadiagala, 2011). Underdeveloped domestic markets and fragile institutions make these economies highly dependent on foreign investment and vulnerable to global political fluctuations (McGuirk and Burke, 2020). Firms in emerging economies often exhibit limited incentives for independent innovation, tending instead to rely on existing technologies and products to satisfy local demand (Chittoor et al. 2015). Without sustained innovation capabilities, such firms risk remaining confined to the lower end of global value chains, reliant primarily on resource and cost advantages.

Prior research indicates that outward foreign direct investment (OFDI) can enable firms from emerging economies to globalize research and development activities, thereby enhancing innovation performance (Liu et al. 2011; Wu et al. 2016). At the 2018 Beijing Summit of the Forum on China–Africa Cooperation (FOCAC), President Xi Jinping underscored the importance of aligning the Belt and Road Initiative with the African Union’s “Agenda 2063” through the implementation of the “Eight Major Initiatives.” China, as one of the most active investors in Africa, has not only facilitated capital inflows but has also influenced the innovation trajectories of African firms through technology spillovers and institutional synergies. Nevertheless, empirical research on the specific mechanisms through which Chinese FDI affects African firms’ innovation remains limited. Addressing this gap, the present study investigates the impact of Chinese FDI and political events on firm-level innovation in Africa, with particular attention to their interactive effects.

Previous studies often conceptualize political events in dichotomous terms. Positive events—such as diplomatic cooperation, formal agreements, and economic partnerships—are generally considered conducive to both FDI inflows and host-country development (Neumayer and Spess, 2005; Nitsch, 2007; Du and Zhang, 2018). Conversely, negative events—such as boycotts, violence, and terrorism—are regarded as detrimental (Heilmann, 2016; Abadie and Gardeazabal, 2003; Blomberg et al. 2004). In reality, however, positive and negative political events frequently occur simultaneously, particularly in African countries characterized by institutional fragility and market instability. Comprehensive analysis of the aggregate impact of political events, as well as their interaction with FDI, is therefore essential for understanding innovation dynamics in Africa.

By employing data from the World Bank Enterprise Surveys (2018–2020), this study provides evidence that Chinese FDI enhances innovation outcomes among African firms. Political events are also shown to exert complementary effects, reinforcing the innovation-enhancing role of FDI. In doing so, the study broadens the perspective of institutional economics and enriches the literature on the interplay of political and market forces in shaping innovation in emerging economies. The research further offers policy recommendations to support African firms in achieving sustainable and innovation-driven development through the effective utilization of Chinese FDI.

The study is organized as follows. We review extant literature on Chinese FDI and the African market, and propose three hypotheses. Then we explain the sample and data sources, measurement, and conduct data analysis. After showing the empirical test results, we discuss the results and conclude the paper.

Literature review and research framework

Political and economic characteristics of African countries

Since the mid-twentieth century, African countries have faced enduring structural challenges rooted in colonial legacies, uneven development, and deep-seated ethnic and religious divisions (Klopp and Paller, 2019). These institutional voids—manifested in weak governance systems, fragmented legal structures, and underdeveloped market institutions—have significantly constrained the ability to foster stable economic and innovation systems. For example, Nigeria’s colonial history amalgamated hundreds of distinct ethnic groups within externally imposed boundaries, disrupting pre-colonial trade relations and creating persistent political tension. While some conflicts have been managed through constitutional mechanisms, others have escalated into prolonged instability, thereby weakening national innovation systems.

Colonial administrative strategies also produced divergent institutional trajectories. British colonies often retained localized political and economic structures, which in some cases facilitated smoother post-independence transitions. By contrast, French colonies were deeply integrated into a centralized imperial framework, constraining local autonomy and perpetuating institutional dependency after independence. These divergent legacies contributed to persistent developmental challenges and uneven innovation capacities across African countries. Figure 1 presents a visualization of political events across 65 African countries between 2006 and 2020, highlighting the frequency of key categories such as “host a visit,” “make a visit,” and “make statement,” which dominate political activities in the region.

Fig. 1: Total number of political events in African countries from 2006 to 2020.
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Data source: GDELT Database.

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Although internal conflict has declined in recent decades, many African economies remain positioned at the lower end of global value chains, largely dependent on resource extraction and low-value-added activities. From an innovation systems perspective, these countries continue to face systemic weaknesses, including inadequate infrastructure, limited technological capabilities, and fragmented knowledge networks. While countries such as Ethiopia and Tanzania have developed emerging industrial sectors, others like Kenya and Nigeria pursue more commerce-driven growth models. However, the persistent lack of absorptive capacity—that is, the ability to recognize, assimilate, and apply external knowledge—remains a critical constraint on innovation performance. Engagement with Chinese FDI has the potential to mitigate these institutional voids, enhance absorptive capacity, and integrate African economies into more sophisticated innovation networks.

According to the FDI Market Database, Chinese investment in Africa totaled USD 107.2 billion between 2006 and 2020, creating approximately 25,700 jobs (Fig. 2). As shown in Fig. 3, these patterns illustrate the sectoral and geographic concentration of Chinese FDI across the continent. The primary destinations include Egypt (USD 28.3 billion), South Africa (USD 12.3 billion), and Nigeria (USD 11.9 billion), with major sectors concentrated in real estate (USD 38.8 billion), coal, oil, and gas (USD 13.5 billion), and metals (USD 11.2 billion). These patterns illustrate the sectoral and geographic concentration of Chinese FDI across the continent.

Fig. 2: 2006–2020 China’s direct investment scale and job scale in Africa.
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Data source: FDI Market Database.

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Fig. 3: Development trend of Chinese investment in Africa from 2006 to 2020.
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Data source: FDI Market Database.

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Chinese FDI and the innovation of African firms

Chinese foreign direct investment (FDI) has the potential to reshape the organizational structures, innovation channels, and financing capacities of African firms, thereby stimulating innovation outcomes in recipient countries.

First, Chinese FDI can reduce organizational inertia and foster strategic reorientation toward innovation. Many African enterprises inherited managerial models from the colonial period and long remained dependent on imports of processed goods and machinery from Western economies. This dependence, coupled with the continued export of primary products to foreign markets, entrenched structural resistance to change. Through strategic cooperation, mergers, and acquisitions with Chinese enterprises, African firms have gained access to knowledge-intensive partners, universities, and highly skilled labor. Exposure to rapidly changing consumer demands and global competition compels African firms to improve, upgrade, and innovate. Subsidiaries of multinational corporations in emerging economies often leverage such conditions to compensate for research and development (R&D) limitations and to strengthen organizational learning (Luo and Tung, 2007). Similarly, Chinese FDI provides an enabling environment that mitigates organizational inertia and supports firms in adopting innovation-oriented strategies.

Second, Chinese FDI diversifies sources of knowledge and reduces the risks associated with innovation. Learning by imitation remains an important channel for acquiring technologies and practices (Bloom et al. 2013). However, managers often hesitate to innovate due to the high costs and uncertainties involved (Kannan-Narasimhan and Lawrence, 2018). Chinese investment in machinery production, raw material processing, and related sectors has provided African firms with access to equipment, components, and inputs at lower costs, thereby strengthening downstream industries (Banerjee et al. 2015; Tang, 2019; Wolf and Cheng, 2018). In addition, Chinese engineering and construction companies frequently train local technicians, establish infrastructure, and sponsor professional exchanges, including training opportunities in China (Tugendhat, 2020). Such transfers of technological and managerial knowledge enable African firms to accelerate innovation at reduced cost and higher efficiency (Malik and Kotabe, 2009; Qiu and Wan, 2015).

Third, Chinese FDI alleviates financing constraints, thereby supporting sustained innovation. Innovation typically requires long-term, stable investment, but the high risks and uncertainties associated with R&D exacerbate financing difficulties (Hall et al. 2016). In the African context, where capital markets remain underdeveloped, these challenges are especially acute. Chinese FDI, supported by initiatives such as the Asian Infrastructure Investment Bank (AIIB), has expanded financing channels, facilitated infrastructure development, and improved industrial conditions. To date, Chinese multinational corporations have established more than 3000 subsidiaries across Africa in industries including construction, mining, agriculture, manufacturing, and financial services. Through joint ventures and acquisitions, such investment provides preferential access to foreign capital, tax relief, and long-term financial support for innovation.

In summary, Chinese FDI promotes innovation among African firms by reducing organizational inertia, mitigating innovation risks, and alleviating financing constraints. These mechanisms collectively strengthen the capacity of African enterprises to pursue innovation-driven development. The influential mechanism of Chinese FDI on corporate innovation in Africa is shown in Fig. 4, and we also propose:

Fig. 4: Hypothesis 1: Chinese FDI promotes innovation among African firms.
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The mechanism of Chinese FDI on firm innovation in Africa.

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Political events in recipient countries and innovation in African firms

Innovation requires sustained and stable capital investment. However, given its long time horizon, high risks, and inherent uncertainties, innovation activities are heavily influenced by the broader business and political environments in which firms are embedded. According to institutional theory, institutions establish the rules of interaction within societies, and organizations operate within these constraints (North, 1990; Viglioni et al. 2023). Some studies argue that Chinese FDI demonstrates resilience to political risk in bilateral trade with developing countries (Kang and Jiang, 2012). Informal networks and “non-market behaviors” may partially substitute for underdeveloped formal institutions, thereby facilitating China’s capital investment and business expansion in Africa (Tong, 2005; Shafer et al. 2007). In this context, the frequent occurrence of political events can disrupt established structures, weaken market rigidity, and create opportunities for foreign investors to participate directly in local production and management. Such involvement by multinational corporations can introduce advanced managerial practices, foster regional economic integration, and potentially stimulate indigenous innovation. Political events may also reduce information asymmetries and investment uncertainty by reshaping perceptions of foreign partners, thereby encouraging greater flows of Chinese FDI (Johanson and Wiedersheim-Paul, 1975; Håkanson and Ambos, 2010).

Conversely, recurrent political events may heighten operational and environmental risks, leading firms to reduce or delay R&D investment. First, increased uncertainty compels banks and investors to demand higher compensation for financing, thereby raising external borrowing costs. Policy volatility can further constrain access to capital markets, undermining firms’ incentives to innovate. Second, political instability often generates fluctuations in revenue and operating costs, reducing the predictability of cash flows (Baumol et al. 1970). Under such conditions, firms tend to adopt risk-averse strategies and may forego potentially high-yield innovation projects. Finally, persistent instability weakens financial markets, raising information costs and resource allocation inefficiencies. As a result, managers may reduce R&D intensity and shift toward short-term exploitative projects, thereby impeding innovation outcomes (Bloom et al. 2007). In light of these competing mechanisms, two alternative hypotheses are advanced:

Hypothesis 2A: Political events in recipient countries exert a positive effect on firm-level innovation.

Hypothesis 2B: Political events in recipient countries exert a negative effect by inhibiting firm-level innovation.

Interactive effects of Chinese FDI and political events on innovation in African firms

The relationship between government intervention and market mechanisms has long been a central theme in development studies. In many African economies, underdeveloped domestic markets, frequent political disputes, and weak trade systems render local firms highly dependent on foreign investment and vulnerable to fluctuations in the global political environment (McGuirk and Burke, 2020). For emerging economies, governments often serve as the most influential actors and principal providers of resources (Hoskisson et al. 2000; Ring et al. 2005). Both market conditions and political dynamics, therefore, play decisive roles in shaping the scale and effectiveness of foreign investment.

When domestic market conditions are weak, government intervention can create a favorable environment for Chinese FDI and facilitate local firms’ innovation. Public governance mechanisms can help firms overcome organizational inertia, while credit guarantees may support cross-border cooperation. Preferential policies—including land allocation, tax incentives, and targeted subsidies—can further stimulate innovation activities (Kleer, 2010). In addition, procurement programs and large-scale government orders can ease financing constraints and channel resources toward research and development (Roe and Siegel, 2011). Through these measures, governments help mitigate the limitations of market mechanisms and enhance the innovation impact of Chinese FDI.

In contexts where domestic markets function more efficiently, governments may still exert influence through regulatory and administrative instruments such as subsidies, financing platforms, project approvals, and licensing requirements (Fan et al. 2007). These interventions shape firms’ entry and exit conditions and redirect resources in ways that reinforce, rather than diminish, the positive role of market forces in innovation. Taken together, these dynamics suggest that political and market factors operate in a complementary manner, rather than as substitutes, in shaping the innovation effects of Chinese FDI in Africa.The third hypothesis is hereby proposed:

Hypothesis 3: Political events in African recipient countries strengthen the innovation-enhancing effect of Chinese FDI.

Methodology

Data sources and sample description

The analysis of African firms’ innovation is based on the data from the World Bank Enterprise Surveys conducted between 2018 and 2020. The survey encompassed 3471 firms across eight African countriesFootnote 1, collecting information on firm characteristics, infrastructure, competitive environment, technological innovation, government–firm relations, and financing conditions. The sample covered 11 manufacturing industries and 7 service industries, and included small firms (5–19 employees), medium firms (20–99 employees), and large firms (100 employees or more). Stratified random sampling was employed to ensure representativeness across industries, firm sizes, and regionsFootnote 2. To maintain temporal consistency, datasets on foreign direct investment (FDI), institutional quality, and political events were aligned with the survey yearsFootnote 3. Data on Chinese FDI were obtained from the FDI Markets database, the most comprehensive global source of cross-border greenfield investment data, which records investment amounts by investing firm and sector in host countries. As the database does not provide the specific names of host-country recipient firms, industry-level Chinese FDI data were matched with firm-level observations by country, year, and industry. Political events were measured using data from the Global Database of Events, Language, and Tone (GDELT), which compiles news reports in over 65 languages worldwide.

After excluding observations with missing values, the final dataset comprised 3471 African firms from eight countries: Kenya (1092 firms), Morocco (481), Mozambique (288), Rwanda (158), South Africa (1048), and Zambia (404). Among these, approximately 83 percent (2882 firms) were privately owned, while only 8 were state-owned enterprises (defined as firms with more than 50 percent government ownership). Small firms (1339) and medium-sized firms (1222) represented 38.5 percent and 35.2 percent of the sample, respectively. Accordingly, the study primarily reflects the dynamics of small and medium-sized private firms in Africa.

Variables and estimation models

To examine the impact of Chinese FDI and political events in recipient countries on the innovation performance of African firms, the variables are defined and measured as follows:

Firm innovation (Innovation)

Consistent with prior studies (Chen and Miller, 2007; Lin et al. 2011), indicators of firm innovation are constructed from both input and output perspectives. Research and development (R&D) investment constitutes the foundation of innovation capability, but in African economies, it is often constrained by limited financial resources, shortages of skilled labor, and underdeveloped institutional frameworks. As a result, firms tend to prioritize process innovation, which provides a more accessible means to enhance efficiency and meet market demands. In contrast, product innovation represents a more advanced stage of innovation capability, requiring responsiveness to consumer needs as well as the initial application of new technologies. Given the institutional context of many African countries, product innovation is typically more dependent on external resources and support.

Accordingly, firm-level innovation is divided into three dimensions: R&D investment, process innovation, and product innovation, reflecting the developmental stage of innovation systems in Africa. Innovation input is measured by a binary variable indicating whether the firm has engaged in R&D independently or through cooperative arrangements (Rd_dummy). Innovation outputs are measured through two binary variables: whether the firm has introduced or improved products within the past three years (Inno_product), and whether the firm has introduced or upgraded production processes during the same period (Inno_process). Table 1 provides a detailed summary of the measurement of African firms’ innovation activities.

Table 1 Meaurement of African firms’ innovation activities.
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Chinese foreign direct investment (FDI)

Chinese FDI is measured by the annual industry-level scale of Chinese outward investment in African recipient countries. Data are obtained from the FDI Markets database, the most comprehensive global source of cross-border greenfield investment information, covering all countries and sectors worldwide. Annual industry-level data on Chinese FDI flows to African countries for the period 2018–2020 are aggregated to construct the measure of investment exposure.

Political events in recipient countries (Political)

Political events are measured at the country-year level for each African FDI recipient country. The data are drawn from the Global Database of Events, Language, and Tone (GDELT), which compiles news reports from diverse sources in more than 65 languages, thereby reducing the risk of selective bias. The political environment is captured by the natural logarithm of the annual number of political events recorded in each host country.

Control variables

In line with prior literature, a set of firm- and country-level control variables is incorporated into the empirical analysis. These include institutional quality, governance structure, ownership type, firm age, managerial experience, export orientation, financing constraints, financial environment, firm size, human capital, and employee training. Table 2 provides a detailed summary of all control variables used in the study.

Table 2 Overview of variables.
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To mitigate potential spurious regression problems and more rigorously assess the effects of Chinese FDI and political events in recipient countries on firm-level innovation, the analysis employs the propensity score matching (PSM) approach in the baseline regressionsFootnote 4. The PSM method, rooted in the counterfactual framework of causal inference, is designed to reduce sample selection bias in observational studies. By estimating the probability of receiving Chinese FDI conditional on observable firm- and industry-level characteristics, PSM constructs a matched control group that is comparable to the treatment group. This procedure enables more credible identification of the causal effect of Chinese FDI on innovation outcomes in African firms, particularly in the absence of randomized assignment. After implementing the matching procedure, 376 firms were retained, yielding 376 firm-year observations. Firms that received Chinese FDI during the observation period were designated as the treatment group, while those that did not receive FDI formed the control group. Nearest neighbor matching was applied to pair each treated firm with comparable non-treated firms, and unmatched observations were excluded from the sample. The subsequent regressions were estimated using the matched dataset.

To test the direct effect of Chinese FDI on the innovation performance of African firms, the following fixed-effects regression model was specified:

First, to test the direct impact of Chinese FDI in Africa on the innovation of African firms, the model is constructed as follows:

$${{\rm {Innovation}}}={\alpha }_{0}+{\alpha }_{1}{{{FDI}}}+\sum {{{Controls}}}+\sum {{{Country}}}+\sum {{{Industry}}}+{\varepsilon }_{i,t}$$
(1)

Second, to examine the direct impact of political events in recipient countries on the innovation of African companies, the model is constructed as follows:

$${{{Innovation}}}={\beta }_{0}+{\beta }_{1}{{{Political}}}+\sum {{{Controls}}}+\sum {{{Country}}}+\sum {{{Industry}}}+{\varepsilon }_{i,t}$$
(2)

Third, to examine the interactive impact of Chinese FDI in Africa and political events in recipient countries on the innovation of African firms, the model is constructed as follows:

$$\begin{array}{c}{{{Innovation}}}={\gamma }_{0}+{\gamma }_{1}{{\rm {FDI}}}* {{{Political}}}+{\gamma }_{2}{{{Political}}}+{\gamma }_{3}{{{FDI}}}+\sum {{{Controls}}}\\ +\sum {{{Country}}}+\sum {{{Industry}}}+{\varepsilon }_{i,t}\end{array}$$
(3)

The dependent variables used to measure firm innovation include Rd_dummy, Inno_product, and Inno_process. The key explanatory variables are FDI, representing industry-level Chinese foreign direct investment in African recipient countries, and Political, denoting the annual number of political events in the host countries. Control represents the set of firm- and country-level control variables. Country fixed effects (∑Country) and industry fixed effects (∑Industry) are included to account for unobserved heterogeneity across countries and sectors. If Hypothesis 1 holds, indicating that Chinese FDI promotes firm-level innovation in Africa, the estimated coefficient of FDI \({\alpha }_{1}\) in Eq. (1) is expected to be significantly positive. If Hypothesis 2 holds, suggesting that political events in host countries enhance innovation among African firms, the estimated coefficient of Political β1 should be significantly positive. If Hypothesis 3 is supported, whereby political events moderate and weaken the positive effect of Chinese FDI on innovation, the estimated coefficient of the interaction term FDI × Political is expected to be significantly negative.

Descriptive statistics and analysis of variables

As reported in Table 3, the mean value of Chinese FDI is 4.01, suggesting that there remains considerable scope for further expansion. The mean value of political events is 11.47, indicating that most African countries continue to experience persistent and multifaceted political instability. Regarding the control variables, the majority of firms in the sample are privately owned. The mean shareholding ratio of the largest shareholder is 0.8, reflecting a relatively concentrated ownership structure. The average export ratio is 0.09, which suggests that export orientation among the sampled firms is relatively limited. The mean firm size is 80 employees, with a standard deviation of 265.92, indicating substantial variation in firm size across the sample.

Table 3 Descriptive statistics.
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In addition, a Pearson correlation analysis was conducted for the main variables, and the results are presented in Table 4. The correlation coefficients among the key variables are all below 0.5, suggesting that the choice of model variables is appropriate and that multicollinearity is not a serious concern in the analysis.

Table 4 Correlation matrix.
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Empirical results and analysis

The impact of Chinese FDI on corporate innovation

To examine the impact of Chinese FDI on African firms’ innovation, two dimensions are considered: innovation input and innovation output. Model (1) in Table 5 reports that the coefficient of R&D investment (Rd_dummy) is statistically insignificant, suggesting that Chinese FDI does not exert a significant effect on firms’ R&D investment. In contrast, Model (2) shows that the coefficient of product innovation (Inno_product) is 0.073 and significant at the 1% level, indicating that Chinese FDI has significantly promoted product innovation among African firms. Similarly, Model (3) reveals that the coefficient of process innovation (Inno_process) is 0.045 and significant at the 5% level, confirming that Chinese FDI has also had a significant positive effect on process innovation. These findings suggest that innovation activities in African firms have progressed beyond imitation and the adoption of existing products and processes, moving toward technological breakthroughs and original product innovation with the support of FDI. Thus, Hypothesis 1 is partially supported.

Table 5 The impact of Chinese FDI on corporate innovation.
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With respect to the control variables, the estimated coefficient of executive experience (Work) is significantly positive, indicating that firms with more experienced managers achieve superior innovation outcomes compared with those led by less experienced executives. Furthermore, the results highlight that strengthening employee training (Train) is a critical factor in enhancing firms’ innovation capacity. We also provide marginal effects plots for the relationship between industry-level Chinese FDI and the innovation of African firms. As shown in Fig. 5, Chinese FDI at the industry level exerts a positive effect on firm-level innovation, with innovation outcomes rising as industry exposure to Chinese FDI increases.

Fig. 5: Relationship between industry-level Chinese FDI and total innovation output.
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This figure illustrates the positive association between Chinese foreign direct investment (FDI) at the industry level and firms’ total innovation output. As the intensity of Chinese FDI increases, total innovation output (measured by the aggregate number of innovation activities) rises correspondingly, indicating that higher levels of Chinese FDI are linked to enhanced corporate innovation performance.

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Interactive impact of Chinese FDI and political events on corporate innovation

To test Hypothesis 2, which examines the interactive impact of Chinese FDI and political events in recipient countries on firm innovation, the estimation results are presented in Table 6. In Model (4), the coefficient of Political is –0.018 and significant at the 5% level, indicating that political events in host countries inhibit corporate R&D investment. In Model (5), the coefficient of Political is statistically insignificant, suggesting that political events exert no meaningful effect on product innovation. By contrast, in Model (6), the coefficient of Political is significantly positive, consistent with the theoretical expectation of Hypothesis 2. This result suggests that, on the one hand, changes in the political environment motivate African firms to pursue opportunities arising from technological shifts and business transformation; on the other hand, such changes can provide external conditions and financial support conducive to technological upgrading and process restructuring.

Table 6 The impact of political events on corporate innovation.
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Regarding the interaction effects, the coefficient of FDI × Political in Model (7) is statistically insignificant, implying no significant joint effect of Chinese FDI and political events on firms’ R&D investment. However, in Models (8) and (9), the coefficients of FDI × Political are positive and significant at the 1% and 5% levels, respectively. These findings indicate that political events in host countries enhance the innovation outcomes of African firms and reinforce the positive effect of Chinese FDI. The results therefore provide evidence of a complementary, rather than substitutive, relationship between political and market forces in shaping firm-level innovation in Africa.

Robustness test

To enhance the robustness of the findings, several supplementary tests were conducted.

First, the analysis employs the alternative weighted least squares (WLS) method to examine the impact of Chinese FDI and political events on firms’ innovation outputs. The WLS model addresses heteroskedasticity by assigning weights inversely proportional to the variance of the error term, thereby improving the efficiency and reliability of the estimates. In this context, heteroskedasticity may arise from firm-level heterogeneity in innovation performance across industries and countries. By applying WLS, observations with disproportionately large variances are prevented from exerting undue influence on the regression results. The WLS estimates remain broadly consistent with the baseline findings.

Second, an instrumental variable (IV) approach is applied to further address potential endogeneity concerns. Endogeneity may arise from reverse causality, omitted variables, or measurement error, all of which are particularly relevant in the African context, where political, institutional, and economic dynamics may simultaneously affect both FDI inflows and firm innovation outcomes. The IV method introduces the total amount of FDI at the country level, which is correlated with industry-level FDI but exogenous to firm-level innovation. The IV estimation results are consistent with the baseline, thereby strengthening causal inference.

Third, as innovation outputs are not only reflected in firms’ willingness to innovate through product design and process transformation but also in their realized innovation performance, an alternative indicator of total innovation output is employed. Substituting this measure for product and process innovation yields results (reported in Table 5) in which the coefficients of Chinese FDI and political events remain significantly positive, as do the coefficients of the interaction term FDI × Political, further supporting the study’s hypotheses.

Fourth, a placebo test is conducted to examine whether the estimated effect of Chinese FDI is attributable to unobservable factors rather than the actual investment. Specifically, the implementation time of Chinese FDI is artificially shifted two years earlier than the recorded date. If the main results were driven by unobservable inherent differences between countries that received FDI and those that did not, the placebo test would yield similar findings. However, as reported in Table 7, the coefficients of FDI are not statistically significant under this specification, indicating that the baseline results are unlikely to be explained by unobserved heterogeneity.

Table 7 Robustness test.
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Discussion

The empirical findings indicate that Chinese FDI exerts a statistically significant and positive influence on the innovation outputs of African firms. Political events in recipient countries play a dual role: they not only directly stimulate firm-level innovation but also amplify the positive spillover effects of Chinese FDI. While these results are consistent with the study’s hypotheses, they warrant critical reflection within the broader scholarly context, alongside consideration of the study’s limitations and implications.

First, the findings contribute to the FDI literature by illuminating the multiple channels through which Chinese investment can foster innovation in African firms. Whereas prior research has largely emphasized technology transfer as the dominant mechanism (Tang, 2019; Wolf and Cheng, 2018), the present study underscores a more multifaceted innovation effect. Chinese FDI appears to enhance innovation not only through tangible technological transfers but also by reshaping organizational routines, reducing innovation risks, and alleviating financing constraints. This perspective complements and extends the conventional narrative, which often frames Chinese FDI in Africa primarily as resource-seeking (Buckley et al. 2002). By demonstrating its role in facilitating technological upgrading and organizational learning, the study challenges the dichotomy between market-seeking and resource-seeking motives. Nevertheless, it should be acknowledged that the innovation-inducing effects of FDI may vary considerably across sectors and firm sizes—an issue that remains underexplored here and merits further investigation (Aitken and Harrison, 1999; Crespo and Fontoura, 2007).

Second, the results enrich the institutional economics literature by showing that political events, often perceived as disruptive, may under certain conditions contribute constructively to innovation. This aligns with arguments that institutional instability can reduce information asymmetries for foreign investors and create opportunities for institutional arbitrage (Henisz, 2000). Political transitions, for example, may open policy windows or stimulate regulatory reforms that indirectly foster innovation-friendly environments. However, the role of political events is not uniformly beneficial. While they can lower psychic distance and reduce investment uncertainty (Håkanson and Ambos, 2010), persistent volatility may instead generate institutional voids, capital flight, and talent drain (Rodrik, 2004). Moreover, the extent to which African firms can absorb and exploit the innovation opportunities created by FDI is closely tied to domestic institutional capacity, which differs substantially across countries and regions (North, 1990; Robinson and Acemoglu, 2012). Consequently, these findings should be regarded as context-specific rather than universally generalizable across African economies.

Finally, the study offers new insights into the interaction between political dynamics and market mechanisms in shaping innovation outcomes. Whereas earlier research often regarded political instability primarily as an impediment to FDI-led development (Asiedu, 2006; Schneider and Frey, 1985), the results here point to a more nuanced interplay. Certain political events, such as democratic transitions or major policy shifts, may reduce institutional distance, promote economic integration, and thereby reinforce rather than undermine the market effects of FDI. This interpretation contrasts with substitution logics in conventional political economy, which assume that political risks necessarily weaken market-based mechanisms. Instead, the findings resonate with recent scholarship on “institutional bricolage” in hybrid institutional contexts (Meyer and Peng, 2016), where political and market logics may interact synergistically to generate innovation outcomes that are less attainable in stable yet rigid institutional environments.

Conclusions and recommendations

Drawing on firm-level data from the World Bank Enterprise Surveys in Africa (2018–2020), this study investigates the direct and interactive effects of Chinese foreign direct investment (FDI) and political events on firm-level innovation. The findings demonstrate that Chinese FDI significantly enhances the innovation capacity of recipient firms, indicating its constructive role in upgrading local technological capabilities. Political events in host countries not only exert an independent positive effect on innovation but also reinforce the innovation-enhancing role of Chinese FDI. These results suggest a complementary, rather than substitutive, relationship between political and market factors in shaping the allocation of innovation resources. The study, therefore, contributes to institutional economics and FDI scholarship by highlighting how foreign capital and political dynamics jointly influence innovation in developing economies.

For policymakers, African governments should prioritize attracting Chinese FDI into strategic emerging industries that are both innovation-intensive and highly responsive to external investment, such as information and communication technology (ICT), advanced manufacturing, and green energy. By introducing targeted industrial policies and preferential tax incentives, governments can channel foreign investment into sectors with high technological spillover potential and long-term developmental benefits. In addition, recognizing the complementary role of political dynamics, governments should foster diplomatic engagement and research cooperation with foreign partners. Encouraging Chinese investors to adopt diversified modes of collaboration can ensure that investment provides not only financial capital but also capacity building in technology development and market expansion. Furthermore, reforms in public governance and stronger government support in resource allocation can create an institutional environment conducive to collaborative innovation and enhanced implementation capacity.

For business managers, African firms should place indigenous technological innovation at the center of their development strategies, supported by adaptive organizational structures and effective management systems. In the context of the expanding digital economy, firms must invest in internet-related technical knowledge, workforce training, and institutional adaptation to sustain long-term innovation. Active engagement with Chinese enterprises through capital cooperation, technological collaboration, and market integration is also critical. In particular, manufacturing firms should pursue joint initiatives in intelligent production, automation, and local R&D, thereby facilitating a transition from resource-driven to innovation-driven growth and strengthening their positions in global value chains.

Several limitations should be acknowledged. First, the measurement of political events relies on the GDELT database, which records the frequency of events but does not adequately differentiate between cooperative and conflictual dynamics. Political events vary in intensity, as reflected in Goldstein values ranging from –10 to 10. For instance, the impact of a mass killing (Goldstein value –10) cannot be equated with multiple “disapprove” events (Goldstein value –2). Future research should therefore consider both the nature and magnitude of political events. Second, due to the limitations of the World Bank Enterprise Survey, the firm-level data for the eight countries were collected in different years: Chad, Mozambique, and Kenya in 2018; Morocco, Rwanda, and Zambia in 2019; and South Africa and Egypt in 2020. As a result, the constructed dataset does not constitute a balanced panel. In future research, we will endeavor to supplement and extend the dataset to achieve greater completeness and robustness.