Economic growth and openness in Africa: What is the empirical relationship?

Abstract

This study examines the effects of trade policies on economic growth in Africa. The econometric methodology follows the cross-country studies by Barro (1991) and Kandiero and Chitiga (2003) with empirical application to a panel of 36 African countries observed over the period 1980 to 2009. Panel regressions are carried out using the fixed-effects models. The aim is to provide an empirical evidence for the driving force of Africa's economic growth. The results illustrate that openness in trade and investment is positively related to economic growth significantly. However, foreign aid, gross national savings and investment have negative relationships to both Gross Domestic Product (GDP) growth and GDP. Using South Africa as benchmark, the regional performance indicates that North Africa is the best one in generating positive GDP growth from Foreign Direct Investment (FDI), followed by Middle Africa whilst East Africa and West Africa compete for the third and fourth positions.

Keywords:

• openness
• economic growth
• Africa
• foreign aid
• foreign direct investment

JEL Classification:

• O11
• O55

Acknowledgements

We gratefully acknowledge the financial support from the Taiwan ICDF Scholarship Programme.