The impact of trade openness on industrialization in Africa : A panel data analysis

Abstract

This paper examines the relationship between trade openness and industrialization in 14 African countries over the period 1990–2022. Using World Bank data and a panel data econometric framework, the study investigates the association between trade openness, measured as the ratio of exports and imports to GDP, and industrial value added, while accounting for several macroeconomic determinants. The empirical results reveal a positive and statistically significant association between trade openness and industrial value added. This positive and significant relationship remains robust across alternative model specifications, whereas the results for the other explanatory variables are more sensitive to the estimation  methods employed. The study's contribution is primarily empirical, providing evidence on this relationship across a group of African countries over a 33-year period. The sample comprises 14 countries selected through a purposive sampling approach, based on their levels of industrialization, degrees of trade openness, and data availability over the study period. It is therefore not representative of African economies as a whole, which limits the generalisability of the findings beyond the countries examined and calls for caution when extrapolating the results to the entire continent. Moreover, the estimates indicate a statistical association rather than a causal effect, as no specific strategy has been implemented to address potential endogeneity. Finally, the industrial value added indicator encompasses mining and quarrying, as well as construction activities, and is therefore not restricted to manufacturing.