The Two‐Tier Bargaining Model Revisited: Theory and Evidence from <scp>C</scp> hina's Natural Resource Investments in <scp>A</scp> frica

Abstract

In recent years, foreign direct investment ( FDI ) in natural resource industries by C hinese firms in A frica 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 T anzania, we find that the C hinese government and firms engage in a bargaining model different from traditional models. Specifically, they engage in a modified one‐tier bargaining model in which the C hinese government represents the collective interests of C hinese natural resource firms to negotiate with the host country government. In exchange for investment deals in the natural resource sector, the C hinese government offers a package with loans that support multiple‐purpose development projects in various sectors, with a focus on infrastructure. C hinese firms act as a group to fulfill the C hinese government's commitments to the host country government. We discuss the boundary conditions for this C hinese‐style bargaining model and its relationship to political risk. We conclude that the C hinese model has unique elements, although they are likely limited to resource investments in developing countries.