The Two-Tier Bargaining Model Revisited: Theory and Evidence from China's Natural Resource Investments in Africa

Global Strategy Journal, Forthcoming

48 Pages Posted: 16 Jun 2013

See all articles by Jing Li

Jing Li

Simon Fraser University

Aloysius Newenham-Kahindi

University of Saskatchewan

Daniel M. Shapiro

Simon Fraser University (SFU) - Policy Analysis Area

Victor Zitian Chen

University of North Carolina, Charlotte; University of North Carolina (UNC) at Charlotte - The Belk College of Business Administration

Date Written: June 14, 2013

Abstract

In recent years, foreign direct investment (FDI) in natural resource industries by Chinese firms in Africa has increased rapidly. The strategic importance of the natural resource sector to host country governments produces considerable bargaining over entry and operating terms, with attendant political risks. Using case studies in Tanzania, we find that the Chinese government and firms engage in a bargaining model different from the traditional models. Specifically, they engage in a modified one-tier bargaining model in which the Chinese government represents the collective interests of Chinese natural resource firms to negotiate with the host country government. In exchange for investment deals in the natural resource sector, the Chinese government offers a package with loans that support multiple-purpose development projects in various sectors, with a focus on infrastructure. Chinese firms act as a group to fulfill the Chinese government’s commitments to the host country government. We discuss the boundary conditions for this Chinese-style bargaining model and its relationship to political risk. We conclude that the Chinese model has unique elements, although they are likely limited to resource investments in developing countries.

Keywords: Chinese firms, Outward FDI, Natural resource industry, Bargaining model, Africa

Suggested Citation

Li, Jing and Newenham-Kahindi, Aloysius and Shapiro, Daniel and Chen, Victor Zitian, The Two-Tier Bargaining Model Revisited: Theory and Evidence from China's Natural Resource Investments in Africa (June 14, 2013). Global Strategy Journal, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2279709

Jing Li (Contact Author)

Simon Fraser University ( email )

8888 University Drive
Burnaby, British Colombia V5A 1S6
Canada

Aloysius Newenham-Kahindi

University of Saskatchewan ( email )

25 Campus Drive
Saskatoon, Saskatchewan S7N 5A7
Canada

Daniel Shapiro

Simon Fraser University (SFU) - Policy Analysis Area ( email )

Room 2400 - 515 West Hastings St.
Burnaby, British Columbia V5A 1S6
Canada
604-291-5155 (Phone)
604-291-5122 (Fax)

Victor Zitian Chen

University of North Carolina, Charlotte ( email )

The Belk College of Business
Charlotte, NC 28223

HOME PAGE: http://www.ChenZitian.com/

University of North Carolina (UNC) at Charlotte - The Belk College of Business Administration ( email )

The Belk College of Business
Charlotte, NC 28223

HOME PAGE: http://www.ChenZitian.com/

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