The AfCFTA, FDI Composition, and Structural Transformation: A Sector-Level Panel Analysis of African Economies

Résumé

The effective implementation of the African Continental Free Trade Area (AfCFTA) is expected to significantly reshape investment dynamics and production structures across Africa. While its capacity to boost overall foreign direct investment (FDI) inflows is widely acknowledged, the importance of FDI composition in driving structural transformation remains underexplored. This study examines the differentiated effects of disaggregated FDI on sectoral value-added and employment shares, while also analyzing how AfCFTA-induced trade liberalization moderates these relationships. Using a dynamic panel estimated through the Generalized Method of Moments (GMM) on a novel dataset covering 40 African countries and 20 sectors from 2003 to 2023, the results reveal strong heterogeneity in the developmental impact of FDI.

The findings show that manufacturing and market-seeking services FDI have a positive and statistically significant effect on structural transformation, enhancing both sectoral value-added and employment shares. In contrast, extractive FDI does not contribute to these outcomes and may even crowd out manufacturing activity in certain specifications. Moreover, a positive and significant interaction between intra-African tariff reductions (used as a proxy for AfCFTA implementation) and non-extractive FDI suggests that trade integration amplifies the transformative potential of productive investment by fostering larger markets and regional value chains. These results imply that the benefits of AfCFTA are not automatic and require complementary domestic policies focused on improving institutional quality, infrastructure, and human capital to effectively channel FDI toward high-value, high-linkage sectors.