Trade openness, FDI and economic growth in sub-Saharan Africa: do institutions matter?

The paper investigates empirically the role of institutions as an interactive factor in the FDI, trade and growth nexus in sub-Saharan Africa (SSA). We use the Structural Equation Modelling (SEM) technique with data from 34 SSA countries covering the period 1996–2016. We find evidence of a decreasing effect of FDI on economic growth, which increases monotonically without institutions. On the trade openness – growth nexus, we find a positive effect of institutions on trade openness. We also find a positive institutional quality effect on growth; however, no such effect is found on FDI. Human capital development, financial development, and resource rent are equally found to exhibit positive effects on economic growth in SSA. In conclusion, our findings indicate the need for a targeted approach towards improving institutional quality to enhance economic growth and development in SSA.