The Growth Effects of Openness to Trade and the Role of Institutions: New Evidence from African Countries

Baliamoune-Lutz, Mina and Ndikumana, Léonce (2007): The Growth Effects of Openness to Trade and the Role of Institutions: New Evidence from African Countries.

Abstract

In this paper, we explore the argument that one of the causes for the limited growth effects of trade openness in Africa may be the weakness of institutions. We also control for several major factors and, in particular, for export diversification, using a newly developed dataset on Africa. Results from Arellano- Bond GMM estimations on panel data from African countries show that institutions play an important role in enhancing the growth effects of trade. Moreover, we find that the joint effect of institutions and trade has a U-shape, suggesting that as openness to trade reaches high levels, institutions play a critical role in harnessing the trade-led engine of growth. The results from this paper are informative about the missing link between trade liberalization and growth in the case of African countries.

• Item Type: MPRA Paper
• Language: English
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O1 - Economic Development > O11 - Macroeconomic Analyses of Economic Development; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies