Abstract
In its various publications, the International Monetary Fund (IMF) has vigorously advocated the need for reforming African trade policy from inward oriented strategies to outward oriented ones. While most countries in Africa have long accepted the reform agenda, there remains marked differences in their expected growth outcomes. This raises some skepticism about the value of trade openness on growth especially in the Sub- Saharan Africa (SSA).This paper therefore investigates how trade openness impacts growth in SSA. In order to further enrich the debate around trade policy orientation and its corresponding effects on growth, we examine the interaction effect of openness and institutions quality on growth. In doing so, panel data set were collected for a sample of 27 SSA countries covering the period 1996-2016.The study employed a dynamic panel estimation technique with a view of evaluating the relative impact of the predictors on growth. The results revealed that trade openness alone bring significant negative impact on growth performance in SSA. However, the simultaneous interaction of trade openness with institutions quality brings about positive and significant impact on growth. This confirmed that positive impact of trade openness on growth is conditional on the quality of institutions. For policy, our results imply that governments in SSA should first strengthen their institutions while adopting a gradual approach to trade liberalization.Keywords: trade openness; institutions quality; economic growth; interaction; Sub-Saharan AfricaJEL Classifications: C23; C2DOI: https://doi.org/10.32479/ijefi.10098
Highlights
The notion of economic growth is fundamental to economists and policy makers because of its central role in economic development
In order to further enrich the debate around trade policy orientation and its corresponding effects on growth, we examine the interaction effect between openness and institutions quality on economic growth that has been neglected in previous researches
Preliminary Evidence In the preliminaries, we try to ascertain whether economic growth increases or decrease as trade openness increases using scatter plots
Summary
The notion of economic growth is fundamental to economists and policy makers because of its central role in economic development. The key factors that propel economic growth have been an area of interest for a very long time to economists and policy makers because of their significant role in the improvement of the standard of living of the populace around the world. Trade openness/liberalization as one of the factors that has a positive effect on economic growth has become very important as the expansion of world markets took cause within the global economy. Trade liberalization contributed to increasing world trade volume and cross-border capital flows. Crossborder capital flows increased to about 20% of the world GDP in 2007, but decreased to 5% of the world GDP in 2012
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