Trade Openness, Institutions and Economic Growth in sub-Saharan Africa (SSA)

Abstract

A major discourse in literature is that one of the causes of the limited growth effects of trade liberalization is the weakness of institutions. The main objective of this study is to investigate the impact of trade openness and institutions on economic growth in sub-Saharan Africa (SSA). Institutions are crafted by man to create a peaceful habitation and reduce uncertainty in the exchange of values; and they play key roles in the management of economies in recent years. The study is significant considering the fact that trade and institutions have been found to exert some measure of influence on the growth of countries. However, evidence has shown that not much has been done in relating institutions to trade in SSA. The study employed econometric analyses involving the Panel Unit Root, Least Square Dummy Variables (LSDV) and the Generalized Method of Moments (GMM) techniques for the period 1985-2012 on thirty selected SSA countries. Secondary data were used for the estimations. The major findings of the study revealed that institutions had a significant positive impact on economic growth but trade openness only had a little significance on growth in the selected SSA countries. Therefore, the study recommended that the SSA countries should ensure that funds be channeled appropriately to projects of economic importance so as to further develop their institutions to have meaningful impact on economic growth. These SSA countries should also create conducive economic and political environments that will engender free international trade between them and other countries of the world.

Keywords: Institutions, Trade Openness and Economic Growth.