Do industrialization, trade openness, and labor force participation enhance Africa’s productive capacity?

Abstract

ABSTRACTWe investigated the effects of industrialization, trade openness, and labor force participation on Africa’s productive capacity. We also examined how industrialization moderates the link between trade openness, labor force participation, and productive capacity. We adopted the pooled OLS, the dynamic system GMM, and the bias-corrected least squares dummy variable (LSDV) estimators for 49 African economies between 2000 and 2018. Our findings indicate that industrialization, trade openness, and labor force participation are significantly enhancing Africa’s productive capacity. Notably, industrialization significantly moderates the positive effects of trade openness and labor force participation on productive capacity in Africa. Our results also indicate that human capital development, foreign direct investment inflow, and institutional quality are significant drivers of productive capacity, while infrastructural development and natural resource endowment have predominantly negative impacts. The policy implications of these findings include the creation of an enabling environment that promotes industrialization, international trade, and increased labor force participation.