The dynamic impact of trade openness on industrialization in Sub-Saharan Africa

Few studies attempt to consider a differential effect in the relationship between trade openness and industrialization; meanwhile effects may differ in signs and magnitudes, in the short term and also in the long term. In this regard, the present work explores the dynamic impact of trade openness on industrialization for 31 sub-Saharan African countries, over the period 1990–2018. A new measure of trade openness and three main proxies of industrialization are used for the empirical statement. Unlike previous studies, the dynamic common correlated effect mean group method is used to properly address issues like heterogeneity, cross sectional dependence and structural breaks in the short- and long-term analysis. In the long run, results indicate that trade openness retards industrialization in sub-Saharan Africa. The impact of trade openness on industrialization in the short run is not significant. This results comfort the hypothesis that trade liberalization increases uncertainty and exposure to foreign shocks. In the short run, more incentives should be put in place, to boost infant industries, especially through private investment and human capital promotion. In the long run, sub-Saharan Africa should be very selective on the type of products intended for trade, in order to improve its industrialization.