Maximizing Industrial Value Added in Sub-Saharan Africa: The Role of Trade Globalisation and Government Regulation

Kingsley O. Onyele¹ , Charity Onyekachi-Onyele² , Eberechi B. Ikwuagwu³

Section:Research Paper, Product Type: Journal-Paper
Vol.12 , Issue.2 , pp.13-25, Jun-2024

Online published on Jun 30, 2024

Copyright © Kingsley O. Onyele, Charity Onyekachi-Onyele, Eberechi B. Ikwuagwu . This is an open access article distributed under the Creative Commons Attribution License, which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
 

View this paper at   Google Scholar | DPI Digital Library

XML View     PDF Download

How to Cite this Paper

Abstract :
This paper investigates the combined impact of trade globalisation and regulatory quality on industrial value-added in sub-Saharan African countries. A panel dynamic model with data from 41 sub-Saharan African countries covering 2001 to 2023. The panel least squares estimation technique of fixed effects was employed. An initial stylized fact shows that SSA countries mainly experience low industrial value-added, unfavourable trade balances and terms of trade, an unstable real effective exchange rate, and poor regulatory quality. Evidence from the result shows that the balance of trade and terms of trade significantly enhance industrial value-added, while regulatory quality exerts a diminishing but statistically significant influence alongside the real effective exchange rate, which was found to be negative and statistically significant. This implies that the promising role of trade globalisation could be undermined by poor regulatory quality and unstable exchange rates. Accordingly, SSA countries must continually and productively enhance local industries, especially through the importation of intermediate goods like advanced technology to aid domestic industrial production and enhance the exportation of locally produced goods to foreign markets for foreign exchange earnings.

Key-Words / Index Term :
Industrial value added, Trade globalization, Government regulation, Balance of trade, Trade openness, SSA

References :
[1] M. Were, “Differential Effects of Trade on Economic Growth and Investment: A Cross-Country Impirical investigation,” Journal of African Trade, Vol.2, pp.71–85, 2015.
[2] M. Bah, H.A. Ondoa, K.D. Kpognon, “Effects of Governance Quality on Exports in Sub-Saharan Africa,” International Economics, Vol.167, pp.1-14, 2021.
[3] M. Surugiu, C. Surugiu, “International Trade, Globalization and Economic Interdependence between European Countries: Implications for Businesses and Marketing Framework,” Procedia Economics and Finance, Vol.32, pp.131 – 138, 2015.
[4] T.S. Akintunde, B.E. Akanbi, A.D. Oladipo, D. Adedokun, “Trade Openness and Manufacturing Sector Performance in Some Selected West African countries: A Panel Study Approach,” ACTA Universitatis Danubius, Vol.17, Issue.3, pp.286-300, 2021.
[5] Y. Keho, “Financial Development, Trade Openness and Economic Growth: The Evidence from West African Countries Revisited,” International Research Journal of Finance and Economics, Vol.179, pp.17-41, 2020.
[6] V.U. Ijirshar, “Impact of Trade Openness on Economic Growth mong ECOWAS Countries: 1975-2017,” Central Bank of Nigeria Journal of Applied Statistics, Vol.10, Issue.1, pp.75-96, 2019.
[7] A. Akinlo, O.C. Okunlola, “Trade Openness, Institutions and Economic Growth in Sub-Saharan Africa,” Jurnal Perspektif Pembiayaan dan Pembangunan Daerah, Vol.8, pp.541-560, 2021.
[8] P. Zahonogo, “Trade and Economic Growth in Developing Countries: Evidence from Sub-Saharan Africa,” Journal of African Trade, Vol.3, pp.41–56, 2017.
[9] C.I. Emehelu, “Effects of International Trade on Economic Growth of Nigeria,” International Journal of Innovation, Finance and Economic Research, Vol.9, pp.144-157, 2021.
[10] E.O. Eleje, O.A. Eze, I.I. Agabi, “Trade Openness for Developing Nations: A Charade or Desideratum for Viable Commodity Export Performance,” International Journal of Economics, Finance and Management Sciences, Vol.8, Issue.1, pp.1-8, 2020.
[11] F. Candau, G. Guepie, J. Schlick J., “The benefits of regional trade agreements in Africa (No. 2018-2019_2), 2019.
[12] S.K. Afesorgbor, “Revisiting the Effect of Regional Integration on African Trade: Evidence from Meta-Analysis and Gravity Model. Journal of International Trade and Economic Development, Vol.26, pp.133–153, 2017.
[13] K.E. Elfaki, D.H. Rossanto, H.I. Kabiru, “The Impact of Industrialization, Trade Openness, Financial Development, and Energy Consumption on Economic Growth in Indonesia. Economies, Vol.9, Issue.4, 2021.
[14] O. Owolabi-Merus, U.E. Inuk, O.K. Odediran, “An Investigation into the Impact of International Trade on the Growth of Nigeria’s Economy. International Letters of Social and Humanistic Sciences, Vol.61, pp.116-125, 2015.
[15] H. Khobai, N. Kolisi, C. Moyo, “The Relationship between Trade Openness and Economic Growth: The Case of Ghana and Nigeria” Online at https://mpra.ub.uni-muenchen.de/81317/MPRA Paper No. 81317, posted 13 Sep 2017 08:39 UTC, 2019.
[16] S.T. Saeed, S.T., M.A. Khalid, “The Impact of Trade Openness on Economic Growth in the Middle East and North African Countries: An Application of the Autoregressive Distributed Lag (ARDL) Model. International Journal of Advanced Research, Vol.5, pp.55-62, 2017.
[17] D. Blavasciunaite, L. Garsviene, K. Matuzeviciute, “Trade Balance Effects on Economic Growth: Evidence from European Union Countries. Economies, Vol.8, pp.1-15, 2020.
[18] A.G. Awan, M. Sheeza, “Causes of Trade Deficit and its Impact on Pakistan’s Economic Growth. Global Journal of Management, Social Sciences and Humanities, Vol.5, pp.480–498, 2019.
[19] H. Fofack, R. Dzene, O.A.M. Hussein, “Estimating the Effect of AfCFTA on Intra-African Trade using Augmented GE-PPML. Journal of African Trade, Vol.8, pp.62-76, 2021.
[20] P.C. Omoke, S. Opuala–Charles, “Trade Openness and Economic Growth Nexus: Exploring the Role of Institutional Quality in Nigeria. Cogent Economics and Finance, Vol.9, 2021.
[21] P. Siyakiya, “Can Trade Openness Stimulate Output Performance? A case of selected African Countries,” Journal of International and Global Economic Studies, Vol.10, pp.55-67, 2017.
[22] V. Gammadigbe, “Trade Integration in West Africa: Does the Quality of Institutions Matter? Journal of African Trade, Vol.8, pp.65–81.
[23] S. Abendin S., P. Duan, “International Trade and Economic Growth in Africa: The Role of the Digital Economy. Cogent Economics & Finance, Vol.9, 2021.
[24] C. Calderon, C. Cantu, A.G. Zeufack, “Trade integration, export patterns, and growth in Sub-Saharan Africa,” Policy Research Working Paper, N. 9132, 2020.
[25] UNCTAD, “The Potential of Africa to Capture Technology-Intensive Global Supply Chains.” The United Nations Conference on Trade and Development, 2023.
[26] D. Kaufmann, A. Kraay, “Worldwide Governance Indicators,” 2023.
[27] E. Herbert, “Market Economy and Government Regulations in Nigeria” European Journal of Business and Management, Vol.7, Issue.13, pp. 186-193, 2015.
[28] D. Kauffman, A. Kraay, “Growth without Governance” mimeo. Washington DC: World Bank, 2002.
[29] S. Jacobs, “Governance of Asia Utilities: New Regulators Struggle in Difficult Environments,” The Governance Brief, Issue 10. ADB Governance and Regional Cooperation Division: Bangkok, 2004.
[30] P. Ubi, E.B. Udah, “Corruption, Institutional Quality and Economic Performance in an Emerging Economy: Lessons from Nigeria,” British Journal of Economics, Management & Trade, Vol.4, Issue.11, pp.1708-1722, 2014.
[31] M. Cave, J. Stern, “Regulatory Institutions and Regulatory Policy for Economics in Transition,” in (ed.) C. Robinson, Regulating Utilities: Understanding the Issues. London: Institute of Economic Affairs, 1998.
[32] J.T. Jalles, “The Impact of Democracy and Corruption on the Debt-Growth Relationship in Developing Countries. Journal of Economic Development, Vol.36, Issue.4, pp.41-55, 2011.
[33] Asian Development Bank, Asian Development Report. Manila: ADB, 2000.
[34] C. Meniago, J.H. Eita, “The Effects of Exchange Rate Changes on Sub-Saharan Africa Trade,” International Journal of Sustainable Economy, Vol.9, Issue.3, 213-230, 2017.
[35] M. Fetahi-Vehapi, L. Sadiku, M. Petkovski, “Empirical Analysis of the Effects of Trade Openness on Economic Growth: An Evidence for South-East European Countries,” Procedia Economics and Finance, pp. 17-26, 2015.
[36] A.K. Jadoon, H.A. Rashid, A. Azeem, “Trade Liberalization, Human Capital and Economic Growth: Empirical Evidence from Selected Asian countries. Pakistan Economic and Social Review, Vol.53, pp.113-132, 2015.
[37] R. Falvey, N. Foster-McGregor, D. Greenaway, “Trade Liberalization, Economic Crises, and Growth,” World Development, Vol.40, pp.2177-2193.
[38] M.L. Goff, R.J. Singh, “Does Trade Reduce Poverty? A View from Africa. Journal of African Trade, Vol.1, pp.5–14, 2014.
[39] B. Tadesse, “The Impacts of the African Growth Opportunity Act on the Economic Performances of Sub-Saharan African Countries: A Comprehensive Review,” Science, Vol.6, issue.14, 2024.
[40] S.B. Shido-Ikwu, A.M. Dankumo, F.M. Pius, Y. Fazing, “Impact of International Trade on Economic Growth in Nigeria,” Lafia Journal of Economics and Management Sciences, Vol.8, Issue.1, pp.212-226, 2023.
[41] O.S. Aigheyisi, M.A. Iyoha, “Implications of the African Continental Free Trade Area for Nigeria’s Economic Growth,” Economic and Financial Review, Vol.60, Issue.1, 25-51, 2022.
[42] A. Sujova, L. Simanova, C. Kupcak, J. Schmidtová, A. Luká?ciková, “Effects of Foreign Trade on the Economic Performance of Industries - Evidence from Wood Processing Industry of Czechia and Slovakia. Economies, Vol.9, 2021.
[43] A.O. Abdillahi, S.S. Safiyanu, T. Soja, “International Trade and Economic Growth: An Empirical Analysis of West Africa. IOSR Journal of Economics and Finance, Vol.7, pp.12-15, 2016.
[44] R. Kaplinsky, M. Morris, “Trade and Industrialization in Africa: SMEs, Manufacturing and Cluster Dynamics. Journal of African Trade, Vol.6, pp.47–59, 2019.
[45] S. Amirkhalkhali, A. Dar, “Trade Openness, Factor Productivity, and Economic Growth: Recent Evidence from OECD Countries (2000-2015). Applied Econometrics and International Development, Vol.19, Issue.1, pp.5-14.
[46] M.R. Malefane, N.M. Odhiambo, “Impact of Trade Openness on Economic Growth: Empirical Evidence from South Africa. International Economics, Vol.71, Issue.4, pp.387-416, 2018.
[47] M. Iyoha, A. Okim, “The Impact of Trade on Economic Growth in ECOWAS Countries: Evidence from Panel Data. Central Bank of Nigeria Journal of Applied Statistics, Vol.8, pp.23-49, 2017.
[48] T. Negishi, “Heckscher-Ohlin Theory,” In: Developments of International Trade Theory. Research Monographs in Japan-U.S. Business and Economics, Vol.6, Springer, Boston, MA, 2001.
[49] E.F. Heckscher, “The Effect of Foreign Trade on the Distribution of Income. A Theoretical,” Ekonomisk Tidskrift, Vol.21, pp.497–512, 1919.
[50] B. Ohlin, “Interregional and International Trade,” Cambridge, MA: Harvard University Press, 1933.
[51] R. Robertson, Effects of Regulating International Trade on Firms and Workers. IZA World of Labor, 2018.
[52] C. Hsiao, “Analysis of Panel Data,” Cambridge University Press, Cambridge, 1986.
[53] A. Davies, K.Lahiri, “A New Framework for Analyzing Survey Forecasts Using Three-Dimensional Panel Data. Journal of Econometrics, Vol.68, 205-222, 1995.
[54] J.G. Altonji, R.L. Matzkin, “Cross Section and Panel Data Estimators for Non-separable Models with Endogenous Regressors,” Econometrica, Vol.73, pp.1053-1102, 2005.
[55] A. Bell, M. Fairbrother, K. Jones, Fixed and Random Effects Models: Making an Informed Choice. Quality and Quantity, Vol.53, pp.1051–1074, 2019.
[56] A. Levin, C.F. Lin, C.S.J. Chu, “Unit Root Tests in Panel Data: Asymptotic and Finite-Sample Properties,” Journal of Econometrics, Vol.108, pp.1-24.
[57] S.K. Towhid, K. Kurokawa, “Impact of Trade Openness on Economic Growth: Evidence from BIMSTEC Countries,” Social System Research, Vol.39, pp.65-81, 2019.