The Role of Exports, FDI and Imports in Development: New Evidence from Sub- Saharan African Countries

The disappointing economic performance of Sub-Saharan African (SSA) economies in the late 1980s prompted economic-wide policy reforms in the early 1990s. The primary objectives of these institutional and structural changes were to promote trade and export activities, enhance foreign direct investment (FDI) inflows, and ease foreign access to SSA markets particularly for large multinational enterprises associated with more advanced technologies and better managerial and organizational practice. This study focuses on the effect of exports, FDI and imports on economic growth in SSA, using the new autoregressive distributed lag (ARDL) approach and Pedroni estimation procedure which also allows for heterogeneity across individual countries. It is found that exports and FDI have significant impact on economic growth. Granger-type causality tests show the interrelatedness of exports, FDI, imports and income variables. The results also provide some evidence of existence of a two-stage causal chain of exports, imports and income. The paper calls for more market-oriented policy changes in SSA countries to create a liberal environment for foreign trade and FDI. Author: Abdullahi D. Ahmed Victoria University-CSES, Level 13, 300 Flinders Street P.O. Box 14428 Melbourne, Vic 8001 Australia Email: [email protected] Author: Enjiang Cheng Address: As above Author: George Messinis Address: As above JEL Classification: E22; O24; N17; O55 † Corresponding author: Victoria University-CSES, Level 13, 3000 Flinders Street, P. O. Box 14428 Melbourne Victoria 8001 Australia. Tel.: +61399191106 , Fax: +61399191350, E-mail address: [email protected] †† Enjiang Cheng is also Adjunct Professor at Zhejiang University. The Role of Exports, FDI and Imports in Output Growth CSES Working Paper No. 39 1