Rethinking export diversification to stimulate resilience against future economic shocks in Sub-Saharan Africa

Abstract

The literature suggests that export diversification is growth-inducing, particularly in developing countries. However, Sub-Saharan Africa has been experiencing deteriorating or insignificant economic growth levels. The region’s exports are highly concentrated; thus, this paper sought to examine the extent of export diversification and its effect on economic growth in Sub-Saharan Africa (SSA). Further, the paper assessed the presence of a U-shaped hypothesis in the context of SSA. The GMM approximation technique was adopted to examine the model’s relationship and control for endogeneity. The results suggest that export concentration significantly hampers economic growth. The results further indicated that foreign direct investment, domestic investment, and trade openness stimulate growth – while weak governance, fluctuating exchange rates and trade policy also adversely affect economic growth. However, the results do not support a hump-shaped (non-linear) correlation between export diversification and economic growth in SSA. To fully recover from the global pandemic and attain higher levels of economic growth, the Sub-Saharan African region needs to implement policies that allow export products and market diversification. While diversification is crucial for development, improving the quality of governance should also be a prerequisite, given that weak governance may interfere with ratifying appropriate and relevant policies aimed at facilitating export diversification.