How are Economic Governance Institutions Moderating the Effect of Economic Complexity on Trade, FDI Inflow, Environmental Degradation, and Economic Growth in Africa?

Abstract

Available literature shows that the economic structure of countries can influence trade, foreign direct investment (FDI) inflow, environmental degradation, and economic growth across nations. However, this literature is scarce in Africa. Besides, economic governance institutions are important factors that may affect growth. Hence, this paper investigates how economic governance institutions are moderating the effect of economic complexity on trade, FDI inflow, environmental degradation, and economic growth in Africa from 2000 to 2020. Employing the system GMM and marginal effect techniques, our results show that: (i) economic governance institutions provide important channels through which economic complexity drives trade, FDI inflow, and economic growth in Africa; and (ii) governance institutions in Africa moderate the effect of economic complexity on the environment by stimulating economic activities that lead to higher carbon dioxide emissions as a byproduct of growth. Overall, we find evidence that improved governance institutions in Africa are capable of intensifying trade, attracting more FDI, and spurring economic growth. The study made some insightful policy recommendations based on these findings.