Export Diversification and Economic Growth in Sub-Saharan Africa

Abstract

Most economies in Sub–Saharan Africa (SSA) have been associated with low and volatile growth performance over the years. Export diversification is identified in the literature as growth–inducing. However, the assessment of the effect of export diversification on economic growth has not received much attention in Sub–Saharan Africa. The study provides evidence on the relationship between export diversification and economic growth using panel data of forty–two (42) Sub–Saharan African (SSA) countries for the period 1995–2010. The study adopts the system GMM estimation technique in order to obtain consistent and efficient estimates of the effect of export diversification on economic growth. In relation to most previous empirical studies, this study accounts for time series variations in the data, captures the unobserved country–specific time–invariant effects, and also controls for endogeneity in the estimation model. The estimation results attest to a positive effect of export diversification on economic growth. Evidence from the regressions does not support a hump–shaped relationship between export diversification and economic growth in SSA. The study further shows that other control variables such as gross fixed capital formation, human capital, and foreign direct investment are significant positive determinants of economic growth in SSA. Population growth rate on the other hand is found to have a negative significant effect on economic growth in SSA. It is recommended that governments in SSA should promote export diversification together with investment in human and physical capital, keep population growth under control, and pursue policies that will attract foreign direct investment into growth–enhancing productive sectors of their economies.