Foreign Direct Investment and Export Competitiveness in Africa: Investigating the Channels (original) (raw)

Abstract

The rise in globalization over the past 30 years has resulted in rapid changes and mobility of technologies and internationalization of production of goods and services through Foreign Direct Investment (FDI) and trade. In line with these trends, Africa has witnessed a surge in FDI in recent years. For instance, FDI increased from US$5 billion in 1995 to US$48 billion in 2015 United Nations Conference on Trade and Development (UNCTAD, 2016). At the same time, the rise in globalization has exposed many African countries to the pressures of international trade competition. This has raised the question of whether FDI could play a role in enhancing export competitiveness in Africa. The recent literature on trade highlights the importance of the composition and structure of exports in driving economic growth, by emphasizing that 'what you export matters' (Hausmann et al., 2007; Lederman and Maloney, 2012). Hausmann et al. (2007) showed that countries that produce higher productivity goods and export sophisticated or 'high-tech' goods are more competitive in international markets and they grow faster. Notwithstanding these observations, Africa's share of global exports of high technology products remains low. For instance, while developing countries accounted for 52% of global exports of high technology products in 2014, African countries accounted for only 0.3% (UNCTAD, 2015). Thus, African policy makers are confronted with a challenge of igniting export growth and enhancing export competitiveness. Export competitiveness is important in Africa for several reasons. First, a large strand of the literature, especially on export-led growth hypothesis, suggests that exports are the main determinants of a country's Gross Domestic Product (GDP) growth (see,

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