Abstract
This study supports the conventional wisdom that openness to trade is good for investment and economic growth. Whether this conclusion leaves space for institutional quality as a complimentary policy to determine the success of trade liberalization in Africa is the objective of this paper. The theoretical model and empirical analysis show how the behavior of government bureaucrats can be used to explain the impact on investment of the interaction between increased openness to trade and the quality of institutions. Empirical work is conducted using panel data observed over three periods: 1985-1990, 1990-1995, and 1995-2000.
Highlights
The discussion on the impact of openness to trade and institutional quality on economic performance is increasingly becoming an important topic
The theoretical model and empirical analysis indicate how the behavior of government bureaucrats can be used to explain the impact on investment of the interaction between increased openness to trade and the quality of institutions
The total impact of openness to trade on investment is reduced by the indirect impact which is through the quality of institutions
Summary
The discussion on the impact of openness to trade and institutional quality on economic performance is increasingly becoming an important topic. As countries present their modalities in the new trade agenda, complimentary policies such as institutional quality should be taken into great consideration. This study supports the general framework that openness to trade is associated with positive economic performance Whether this conclusion leaves space for institutional quality as a complimentary policy to determine the success of trade liberalization in Africa is the objective of this paper. The theoretical model and empirical analysis indicate how the behavior of government bureaucrats can be used to explain the impact on investment of the interaction between increased openness to trade and the quality of institutions. Similar results are derived when different institutional quality variables are used
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