Exports diversification and knowledge sharing from south-south and south-north economic cooperation: evidence from the Central and West Africa

In this paper, we address the issue of knowledge sharing from FDI inflows and imports from the north and south on exports diversification of selected African economies. Applying Generalized Method of Moments (GMM) and Random-Effects Probit with control of endogeneity, we find that FDI inflows and imports from the north and the south affect differently horizontal and vertical exports diversification. Indeed, FDI inflows have the strongest effect on vertical diversification whereas imports impact strongly horizontal export diversification. Moreover, imports from the south have the strongest impact on horizontal exports diversification whereas only FDI from the north significantly affect exports diversification irrespective of its nature. In addition, we find no evidence of knowledge sharing through education, meaning that lack of education significantly reduces the marginal effects of FDI inflows and imports on exports diversification. However, taking knowledge separately, we find that higher education is required to vertically diversify an economy. As policy recommendation, further human capital investment and set up of incentive mechanisms to attract FDI are needed to truly diversify economies of selected countries.