Abstract
This minor dissertation investigates the impact of trade openness on industrialisation (measured as the percentage share of manufacturing value added in GDP) in 43 African countries from 1996 until 2022 using a fixed effects model. The study also analyses the role of institutions in mediating the effects of trade openness (proxied by an economic globalisation index) on industrialisation in the sample of African countries. The evidence shows that, while trade openness has a negative impact on Africa's industrialisation, the interaction term of trade openness and institutional quality is positive. These results are robust in a regression model that includes several significant determinants of industrialisation (gross capital formation, foreign direct investment, real GDP per capita and its squared term, the real exchange rate and inflation). Overall, the findings demonstrate how institutional quality plays a mediating role in the impact of trade openness on industrialisation in African countries. Thus, the ability of trade openness to affect Africa’s industrialisation positively depends on the quality of institutions. The study also finds that the magnitude of the negative effect of trade openness on the low-income group is greater than in the middle-income group, perhaps due to weaker capabilities. The regression results further show that in both income groups institutions play a mediating role. However, this mediating role is relatively more important in low-income countries because the negative effect of trade openness is larger in this group than in middle-income countries.
Keywords: trade openness, globalisation, industrialisation, Institutions, Africa