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Effects of Trade Openness and International Financial Inflows on Africa's Productive Capacity: A Study of the Moderating Role of Governance Institutions

Author

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  • Jonathan E. Ogbuabor
  • Ekene ThankGod Emeka
  • Anthony Orji
  • Fidelia N. Onuigbo

Abstract

We investigate the effects of trade openness and international financial inflows (including foreign direct investment, remittances and foreign aid inflows) on Africa's productive capacity and how governance institutions are moderating these effects. We adopt the dynamic system GMM modelling framework and the Bun and Carree (2005) bias-corrected least square dummy variable estimator with a panel of 43 African economies. We also use the Driscoll and Kraay (1998) standard error fixed effect estimation, which controls for cross-sectional dependence to provide robustness check. We find that trade openness and the various components of international financial inflows are significant drivers of productive capacity in Africa, and that governance institutions are moderating and enhancing their effects. We also find that renewable energy consumption, human capital development and infrastructure development are promoting Africa's productive capacity. We highlight the policy implications of these findings, which among others, encourage policymakers and leaders in Africa to focus on policies that can enhance cross border trade, attract international financial inflows and entrench high-quality institutions.

Suggested Citation

  • Jonathan E. Ogbuabor & Ekene ThankGod Emeka & Anthony Orji & Fidelia N. Onuigbo, 2024. "Effects of Trade Openness and International Financial Inflows on Africa's Productive Capacity: A Study of the Moderating Role of Governance Institutions," Politická ekonomie, Prague University of Economics and Business, vol. 2024(3), pages 501-564.
    • Handle: RePEc:prg:jnlpol:v:2024:y:2024:i:3:id:1418:p:501-564
    DOI: 10.18267/j.polek.1418
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    References listed on IDEAS

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    1. Mohamed Saadi, 2020. "Remittance Inflows and Export Complexity: New Evidence from Developing and Emerging Countries," Journal of Development Studies, Taylor & Francis Journals, vol. 56(12), pages 2266-2292, December.
    2. Mohd IRSHAD & Syed Hasan QAYED, 2022. "Casual nexus between economic growth, FDI and employment: An inquiry into BRICS and ASEAN," Theoretical and Applied Economics, Asociatia Generala a Economistilor din Romania / Editura Economica, vol. 0(2(631), S), pages 107-124, Summer.
    3. Omid Ranjbar & Farhad Rassekh, 2022. "Does economic complexity influence the efficacy of foreign direct investment? An empirical inquiry," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 31(6), pages 894-910, August.
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    More about this item

    Keywords

    Trade openness; international financial inflows; governance institutions; productive capacity; system GMM regression;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F40 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - General
    • L83 - Industrial Organization - - Industry Studies: Services - - - Sports; Gambling; Restaurants; Recreation; Tourism
    • N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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