Impact of foreign direct investment on export sophistication in sub-Saharan Africa: the moderating role of human capital and institutional quality

Purpose This study seeks to examine the determinants of export sophistication in sub-Saharan Africa (SSA), with a specific focus on evaluating whether foreign direct investment (FDI), in combination with human capital (HC) and institutional quality, enhances export sophistication. Design/methodology/approach The study uses the system generalised method of moments on a balanced panel of 35 SSA countries for the period 2010–2023. Findings The results show that while FDI alone has no significant effect, its interaction with HC and institutional quality significantly boosts export sophistication. Gross domestic product (GDP) per capita and trade openness are also positively associated with export sophistication, while population has no effect. These findings suggest that the benefits of FDI depend on a country’s absorptive capacity. Research limitations/implications The study contributes new empirical evidence to the limited literature on FDI and export sophistication in SSA. It underscores the need for deveoping policies that prioritise advances education, encourage institutional reform and promotes strategic trade to foster sustained structural transformation in the region. Originality/value The study contributes new empirical evidence to the limited literature on FDI and export sophistication in SSA and underscores the need for integrated policies that prioritise education, institutional reform and strategic trade to drive sustained structural transformation in the region.