Abstract
The sub-Saharan African region is characterized by a high relative degree of openness to trade. The region is also identified with increased inflows of foreign investments with no significant welfare improvement. Economic development emphasizes that the lack of domestic investment in the developing economies could be boosted by trade openness and inflow of Foreign Direct Investment (FDI) for impactful enhancement of capital formation. In this article, the impact of trade openness and foreign capital inflow on economic welfare was examined on a sub-regional analysis for sub-Saharan Africa. The study also appraised the effect of openness to trade and FDI inflow on the region's economic welfare. The data for 30 countries from 2000 to 2018 were collected and analyzed, with the Generalized Least Square (GLS) technique to fit the model developed. The study showed that openness to trade has a significant impact on economic welfare for all sub-Saharan Africa regions, while FDI is only significant for the Western sub-region. Hence, the study recommends that the government of the countries in the sub-Saharan Africa region should boost trade openness to enhance efficiency in productivity, and improve industrial development.
Highlights
For more than four decades, foreign investment in the African region has had an unpredictable trend with a continuous decline from about $51 Billion to $42 Billion, amounting to a 21 percent fall from 2016 (UNCTAD, 2018)
This study focuses on trade openness and foreign direct investment, and their economic welfare impact, on a sub-Saharan African regional analysis
Openness to international trade is associated with economic growth and welfare for developing economies as in sub-Saharan Africa with tendencies of impact deviation depending on the income level or how developed the economy is (Brueckner & Lederman, 2015; Lumengo & Emilie, 2019)
Summary
For more than four decades, foreign investment in the African region has had an unpredictable trend with a continuous decline from about $51 Billion to $42 Billion, amounting to a 21 percent fall from 2016 (UNCTAD, 2018). Sustainable development asserts that the salient deficiency of domestic investment, which characterizes host developing economies, can be enhanced by a steady inflow of FDI to the economy's dominant sectors. It would impact domestic investment and engage domestic investors' progressive involvement by stimulating and enriching the domestic industries (Amoo 2018). This study focuses on trade openness and foreign direct investment, and their economic welfare impact, on a sub-Saharan African regional analysis. Openness to international trade is associated with economic growth and welfare for developing economies as in sub-Saharan Africa with tendencies of impact deviation depending on the income level or how developed the economy is (Brueckner & Lederman, 2015; Lumengo & Emilie, 2019). UN (2020) in 2017, reported that the rates of trade weights declined to about 2.2 percent globally, with Africa accruing the highest standards, which, still created a wide variance regionally, depicting economic inequality globally
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