Trade Openness and Economic Growth: Analyzing the Role of Human Capital in Africa

Abstract

Over the past few decades, the implementation of numerous intra-African trade treaties has not been very successful for various reasons, including license and permit policies, increased transportation costs, inadequate infrastructure, etc. (see Turkson et al. (2023). To achieve great success with intra-Africa trade, the African Union (AU) introduced the African Continental Free Trade Area (AfCFTA) treaty in June 2018 to enhance sustainable development throughout the African continent. The AU introduced the AfCFTA to foster intra-African trade through mutually advantageous trade agreements between member states. The policy aims to increase economic growth and lessen poverty in Africa by liberalizing trade. AfCFTA's primary goal is to establish a shared market for goods and services to achieve equitable and sustainable development throughout the continent in the next fifty years. Over the past years, empirical studies have yielded inconsistent findings regarding trade-driven growth in Africa and the global economy. To explain the reasons behind the conflicting results, Le Goff and Singh (2014) found that when a country has a highly developed financial sector, robust governance, and high levels of human capital, the full effect of trade-driven growth is realized. Therefore, this thesis examines how Human Capital Accumulation (HCA) functions in Africa's trade-growth nexus. The study employs the static panel approaches on 49 African countries from 2000 to 2020. The study shows that trade openness and human capital boost economic growth. The study also discovers that HCA mitigates the detrimental effects of trade openness on African economic growth. Thus, from the findings of the study it can be inferred that to ultimately profit from trade openness, individual countries must implement policies that promote human capital development to the point where they can compete globally.