Growth by Destination: The Role of Trade in Africa’s Recent Growth Episode

Over the period 1990–2009, Africa has experienced a distinct and favourable reversal in its growth fortunes in stark contrast to its performance in the preceding decades. This paper presents both cross-country and panel-data evidence on the causal factors driving the recent turnaround in Africa’s growth and takes the unique approach of examining the separate growth impacts of Africa’s trade with China, Europe and America. We show that although Africa’s bilateral trade with China has been a key factor spurring growth on the continent, foreign direct investment and private sector investment are, in relative terms, even more important determinants. On the other hand, foreign aid and bilateral trade openness to Europe are found to have growth-reducing effects, while Africa-US trade has no statistically significant impacts. These results are robust across numerous specifications and persist even after carefully accounting for the endogeneity between trade and growth.