A Governance Quality Lens on the Influence of Chinese Outward Investment on Human Development in Belt and Road Initiative Countries

In the evolving global economy, China’s Outward Foreign Direct Investment (OFDI) holds increasing significance, specially within the context of the Belt and Road Initiative (BRI). Despite earlier studies have acknowledged the role of governance quality in attracting Chinese OFDI, their explanatory capacity regarding human development has not received sufficient attention. This study addresses this gap, investigating the relationship between Chinese OFDI and human development, emphasizing the governance quality’s moderating role. Using data from 122 BRI countries from 2004 to 2021, we employed the Panel Corrected Standard Error model through Prais-Winsten regression, complimented by robustness check via the Spatial Durbin Model. Our analysis revealed a significant positive relationship between Chinese OFDI and human development in BRI countries, indicating that Chinese investments act as catalysts for improved well-being. More importantly, governance quality plays a vital role in shaping this relationship, revealing that effective governance enhanced the human development outcomes of OFDI. Post-hoc analysis of governance indicators, both as a composite index and individual dimensions, supported this finding. Regional heterogeneity analysis further showed that Chinese OFDI has stronger effects on Human Development Index (HDI) in Asia and Africa compared to Europe, Latin America, and Oceania. However, the moderating effect of governance quality seemed more prominent in Oceania and Latin America, indicating its role in fostering the benefits of Chinese investments in these regions. These findings hold implications for academia and policy, emphasizing the need for transparent, accountable, and effective governance to drive sustainable and inclusive human development within the BRI framework.