Trade openness, institutions and inclusive growth in Sub-Saharan Africa

Abstract

Inclusiveness of growth of many developing countries has been slow with sub-Saharan Africa at the bottom irrespective of increasing economic growth over the years resulting in high poverty rate and inequality issues. Trade Openness has emerged in several empirical literature as a key factor that could contribute to inclusive growth in emerging economies. However, evidence in literature indicates that trade openness will be more relevant to spur inclusive growth of economies that have strong institutions. Thus, by using system General Method of Moment estimation technique, this study examines how institutional quality and trade openness affect inclusive growth and growth volatility in Sub-Saharan African economies. The study finds that the quality of a country’s institutions enhances the effect of trade openness on inclusive growth of Sub-Saharan African economies. It is therefore recommended that economies in the sub-region should put in measures to strengthen their institutions so that level of trade openness could spur inclusive growth. Specifically, trade can better enhance inclusive growth by creating an environment of responsible institutions, transparent business, protected civil liberty, respected political rights, control of corruption and political stability which promote the expansion of international trade by reducing transactional cost and risk related to trade. This would increase participation of the minor and also create opportunity of growth for all.