Can Trade Openness and Global Value Chains Improve Real GDP Growth and Human Development Index in Sub-Saharan African Countries?

Abstract

In this chapter, the author analyses the impact of trade openness on global value chains, the human development index (HDI) and real gross domestic product (GDP) growth in five sub-Saharan African countries with the lowest HDI, using unbalanced panel data from 1980 to 2016. The author ran a Hausman test to determine an estimate for analysing unbalanced panel data. The Hausman test indicated that the unobserved variables μ_it in models (1) and (2) are uncorrelated with the observed variables x_it and so random effect was the right estimation for analysis. The author estimated model (3) using pooled ordinary least squares (OLS), as the model was consistent for estimation. The results show that trade openness was not significant in explaining HDI but was significant in explaining economic growth and global value chains. This implies that trade openness as a concept is very important in accelerating economic growth and for global value chains and has impacted positively in increasing real GDP growth by almost 15% in the selected sub-Saharan African countries. However, the gains from trade openness have not been fairly distributed among the citizens in Africa, which is why the variable is showing no significant impact on HDI. As such, a strong inclusion action plan will be required by African governments to increase expenditure on:

• Healthcare—to increase life expectancy;

• Innovation and technology;

• Education—to increase skilled and educated labour force and also increase average years of schooling for adults; and

• Social facilities—to increase the standard of living.