Foreign Direct Investment-Trade nexus in sub-Saharan Africa: Does the institutional quality matter?

This paper investigates the effect of Foreign Direct Investment (FDI) on international trade using 34 sub-Saharan African countries over the period spanning from 1996 to 2017. Especially, we evaluate the role institutional quality play on the FDI-trade nexus. Our analysis was carried out using the System Generalized Methods of Moments (SGMM) to accommodate endogeneity. The following results are established: first, there is a complementarity between FDI and international trade and this result is robust to alternative specifications and other indicators for trade . Secondly, the results showed that, sound institutions help FDI promote trade in the region. Finally, natural resources rents, domestic investments, institutions, population growth and inflation are significant determinants of trade in the region.