On the simultaneous openness hypothesis: FDI, trade and TFP dynamics in Sub-Saharan Africa

Abstract

The objective of this research is to assess the relevance of trade dynamics in moderating the effect of foreign investment on productivity dynamics in Sub-Saharan Africa. The study is tailored within the context of a simultaneous hypothesis such that foreign direct investment (FDI) is complemented with dynamics of trade to influence productivity. Accordingly, it is an improved framing of the Rajan and Zingales (2003) position that concurrent opening of trade and capital accounts will lead to greater output in a domestic economy. Moreover, the problem statement underlying this exposition is motivated within the broader context of: (i) debates in the contemporary literature on the relevance of total factor productivity (TFP) and (ii) gaps in the attendant literature. These motivational elements are expanded in the following passages. First, no consensus is apparent in the literature on the relevance of productivity in development outcomes in Africa. In essence, while a strand of studies posits that aggregate productivity is essential in boosting economic development, authors are still divided on the mechanisms through which productivity can be boosted (

The role of globalization in modulating the effect of environmental degradation on inclusive human development

“…Accordingly, trade openness is imports plus exports (% of GDP) while financial openness is net foreign direct investment (FDI) inflows. The choice of these variables to proxy for trade openness and financial openness is consistent with contemporary globalization literature (Tchamyou, 2017;Asongu, Nnanna & Acha-Anyi, 2020). On the concern of normalizing the globalization variables to account for heterogeneity in the size of countries, this study argues that while there are various ways of normalizing globalization variables, GDP as used by the World Bank is a form of such normalization.…”

The role of value added across economic sectors in modulating the effects of FDI on TFP and economic growth dynamics

“…Persistence is exhibited by majority of the outcome variables because the correlation between an outcome variable and its first lags is higher than 0.800, which the rule of thumb required for a variable to be characterised by persistence (Asongu et al. , 2020, a, b). The number of data points in each country (i.e.…”

“…Moreover, the GMM estimator has been widely used in extant cross-country research to assess the drivers of economic growth (Doytch and Uctum, 2011;Siddiqui and Ahmed, 2013) and TFP (Asongu et al, 2020b;Di Liberto et al, 2011).…”

Untitled

“…The research of the relationship between FDIs and productivity has been widely and in-depth conducted for transition economies (Elmawazini et al, 2018), EU countries (Derado and Horvatin, 2019;Vassilis and Jacob, 2010), Central and Eastern European countries (Bijsterbosch and Kolasa, 2010), Gulf Cooperation Organization Member countries (Elmawazini, 2014), Sub-Sharan Africa countries (Asongu et al, 2020), and developing countries (Herzer and Donaubauer, 2018). Koyuncu and Çınar (2009) covered the period 1980-2005 in Turkey for 26 observations with the help of co-integration analysis.…”