Trade, institutional quality and economic growth in Africa: does China and United States trade matter?

Abstract

We investigate the relationship between China and the United States’ trade with sub-Saharan Africa (SSA) and the region's economic growth (EG). The research analyzes trade dynamics, distinguishing between the effects of exports and imports, while highlighting the significant role of institutional quality (IQ) in shaping EG within the context of China–US trade with Africa. Despite increasing trade with China and the US, SSA’s growth has lagged, prompting exploration into the specific trade forms contributing to EG and the role of IQ. Using data from 30 SSA countries from 2002-2020, we employed AMG and IV-2SLS estimations for our analysis. The study reveals that IQ complements Chinese and US trade to promote EG. Importantly, Chinese and US imports from Africa consistently boost growth, with the impact of exports diminishing. Chinese trade proves influential in countries with strong institutions but lacks impact in those with weaker institutions at higher levels of IQ. In contrast, US trade benefits growth in both strong and weak institutional contexts. These findings are instrumental for policymakers, offering insights into the specific trade activities that drive growth in SSA. Additionally, we emphasize the pivotal role of robust institutions in ensuring the positive impact of trade on growth.