Assessing the Impact of One Aspect of Globalization on Economic Growth in Africa
Using panel data, this paper explores the effects of openness to international trade and foreign direct investment (FDI) on economic growth. Fixed-effect and adjusted fixed-effect (regional-effect) estimations yield results consistent with the hypothesis of conditional convergence. FDI has a significant positive impact on economic growth in all specifications. However, openness to trade does not seem to enhance growth in poor countries. The empirical findings fail to substantiate the proposition that greater openness facilitates convergence to higher income levels. On the contrary, there is evidence that greater openness to international trade promotes economic growth primarily in higher-income African countries, implying that threshold effects may be crucial to the effectiveness of openness. Furthermore, the results from the adjusted fixed-effect estimation appear to validate the claim of convergence clubs within Africa.