Foreign Trade and Economic Growth in sub-Saharan African Countries: Dynamic Common Correlated Effects Estimator (CS-ARDL)

This paper investigates the short-run and long-run dynamics between foreign trade and economic growth in 40 sub-Saharan African countries over the period of 1992-2018. It utilized Cross-sectional Augmented Autoregressive Distributed Lag (CS-ARDL) panel data estimations to handle cross-sectional dependency and dynamic heterogeneity of the countries under investigation. The empirical result shows that foreign trade significantly increased the economic growth of sub-Saharan African countries in the short-run but had a significant negative effect on economic growth in the long-run. The results also confirm that total trade, imports, exports, and trade balance Granger caused economic growth in sub-Saharan African countries. For sub-Saharan Africa trade to have a larger effect on economic growth, countries need to modify their structures of a trade by diverting from exports of raw materials to high value-added goods. Moreover, trade policy measures should be directed towards the promotion of investments in capital intensive sectors and human capital development that can absorb technological improvement from advanced countries.