This study quantitatively investigates the role of Foreign Direct Investment (FDI) in shaping Africa’s and specifically Liberia’s trade patterns from 2000 to 2023, focusing on sectoral distribution, regional disparities, and institutional mediators. Drawing on a 23-year panel dataset covering 40 African countries, the research integrates fixed-effects regression, the Gravity Model of Trade, and Herfindahl-Hirschman Index (HHI) metrics to measure export diversification outcomes. Empirical results reveal that extractive FDI remains dominant—constituting 65% of Africa’s total inflows and accounting for over 60% of export revenue—yet it exhibits negligible impact on trade diversification (p = 0. 58). In contrast, manufacturing FDI shows statistically significant positive effects on diversification (β = 0. 30, p < 0. 05), with Ethiopia’s textile sector alone contributing to a six-fold increase in exports between 2015 and 2023. In Liberia, the FDI profile mirrors continental patterns, with over 70% of export earnings still derived from iron ore, rubber, and timber. Despite recent FDI into energy and agro-processing, Liberia’s export diversification index remains high (HHI = 0. 82), reflecting extreme product concentration. Panel regression further indicates that institutional quality (β = 0. 25, p < 0. 01) and infrastructure (β = 0. 19, p < 0. 05) significantly enhance the positive trade effects of FDI. Gravity Model estimates demonstrate that intra-African trade remains low, with only 15% of FDI flowing into regional value chains, suggesting untapped potential under AfCFTA. For instance, South-South investments (e. g. , Shoprite and MTN) increased local sourcing by 20%, while Nigeria and Ghana’s 2. 4 billion joint energy project boosted regional power trade by 12%. The study concludes that sector-specific FDI—particularly in manufacturing and technology—yields more sustainable trade benefits than resource-based investments. It proposes a Sustainable FDI Framework incorporating environmental, social, and institutional variables into traditional trade models. The findings challenge conventional FDI-led growth assumptions by demonstrating that spillovers are not automatic but mediated by governance and policy alignment. Therefore, to achieve trade diversification and structural transformation, countries like Liberia must transition from extractive FDI reliance to targeted investments in manufacturing, renewable energy, and digital services, supported by coherent policy frameworks, regional integration, and local capacity building.
Willie et al. (Wed,) studied this question.