International Trade and Economic Growth in Sub-Saharan Africa: is Institutional Structure Relevant?

Sustainable economic growth is a prerequisite for improved overall macroeconomic performance in Sub-Saharan Africa (SSA). However, Balance of Payments (BOP) deficits constrain the potentials of SSA and other developing countries to sustain high economic growth rates. Therefore, international economics and financial literature emphasise the relevance of financial inflows for sustainable economic growth in developing regions, especially with adequate absorptive domestic capacity. There is no consensus yet about the effect of trade on economic growth in SSA. Moreover, previous studies on SSA ignored the role of institutional structure in the trade flows-economic growth nexus. This study examined the interactive effects institutional structure and trade flows on economic growth, using panel data within the System Generalised Method of Moments (Sys-GMM) econometrics procedure. The data spanned 27 years (1996 – 2022) across 29 out of the 48 SSA countries. The findings were that export and import dampened economic growth, and that institutional structure (quality of institutions and financial sector) was not relevant in the trade flows-economic growth nexus. Therefore, the SSA governments pursue a paradigm shift in their trade relations via increased export incentives, trade infrastructure and subsidies. Keywords: Export, Financial sector, Import, Institutions, Interaction, System-GMM.