Abstract
This research investigates the interactive effect of trade openness and the institutional quality on economic growth in sub-Sahara Africa. The sample consists of 38 sub-Saharan African countries and covers the period 1986-2015. Pooled OLS, fixed effect, and Dynamic GMM were used as estimation techniques. The empirical section used a nonlinear growth regression specification that interacts trade openness with law and order, bureaucratic quality, corruption, government stability, and democratic accountability. The study found that corruption, government stability, law and order, and bureaucratic quality as institutional quality variables harm economic growth. The interaction of trade openness and institutional quality variables positively impacted economic growth. It is an indication that trade openness better impacted economic growth in the presence of high-quality institutional variables.
Highlights
Countries of the world have made various painstaking efforts to boost their economy to improve their citizen's wellbeing
Regarding the difference regression corresponding to the periods t and, we use the following instruments: for the variables measured as period averages – trade openness, human capital, physical capital, government expenditure, and institutional quality variables – the instrument corresponds to the average of the period; t−2; for the variables measured as initial values – per capita GDP – the instrument corresponds to the observation at the start of the period t−1
This study found that trade openness enhances economic growth during the study period
Summary
Countries of the world have made various painstaking efforts to boost their economy to improve their citizen's wellbeing. Studies like Acemoglu, Johnson, & Robinson (2003) and Dollar & Kraay (2003) emphasized that institutions' quality is key to the success of any economic reforms in developing countries. Studies like Hall & Jones (1999) and Acemoglu, Johnson, & Robinson (2001) indicated that good institutional quality ensures that property rights are crucial for long-run growth. Dollar & Kraay (2003a) investigated the partial impacts of trade with institutions on the economic growth rate, and they established that economies with good institutions do more trade and grow quicker. Neither trade openness nor institution has significant effects for developed countries These findings by Ahmed and the absence of unanimity in the body of knowledge spur the authors to investigate the situation in SSA as regards the tradeinstitution-growth debate
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