Relationship between Trade Openness, Institutions and Economic Growth in Sub-Saharan Africa: A Further Look at the Evidence

Both theoretical and empirical literatures have present mixed evidence on the impact of trade openness on growth. Recent studies indicate that the mixed results are conditioned, amongst others, on the quality of domestic institutions. This paper examines the evidence for a sample of 23 countries in Sub-Saharan Africa (SSA) using the Pooled OLS and dynamic GMM system estimation techniques over the period 1996-2011. The results suggest that trade openness alone brings significant negative impact on growth performance in SSA. However, once the interaction between trade openness and institutions is allowed for, growth was found to be positively affected by openness. This confirmed that positive impact of trade openness on growth is conditional on the quality of domestic institutions, especially as it relates to control of corruption, government effectiveness and the rule of law. For policy, our results imply that governments in SSA should first strengthen their institutions while adopting a gradual approach to trade liberalization. Also, the paper cautions that for SSA countries to reap from trade openness, consideration must be given to the nature of imports especially those with high R&D contents.