Financial efficiency, China-Africa economic ties, and foreign direct investment: Marginal and threshold effects of national security and regulation

This study examines the interplay between financial efficiency, China-Africa economic ties, and foreign direct investment (FDI) in Africa from 2010 to 2023, with attention to the marginal and threshold effects of national security. The system generalised method of moments (GMM) serves as the primary estimator, with fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) for robustness, addressing endogeneity, cross-sectional dependence (CD), and heterogeneity across 48 African countries. Financial efficiency is proxied by net interest margin (NIM), lending-deposit spread (LDS), and non-interest income (NII) to total revenue. NIM is positively and significantly associated with FDI; LDS and NII produce mixed results driven by macroeconomic conditions and financial system structure. China’s loans to Africa (CLA) stimulate FDI, though debt sustainability and governance deficits limit this effect in several country contexts. National security, measured by domestic military expenditure (DME) and the Global Terrorism Index (GTI), exhibits dual threshold effects: moderate DME is associated with investor confidence in stable environments, while excessive spending deters capital in conflict-prone regions. Extending Logan et al. (2025), the study integrates marginal and threshold analyses within a 48-country African panel and concludes with policy recommendations for financial sector reform, security expenditure calibration, and China-Africa partnership management.