Foreign Direct Investment and Exports as A Capacity to Import Vis-À-Vis Trade Balance in Sub-Saharan Africa
Abstract
We examine the interaction effect of foreign direct investment (FDI) and exports as a capacity to import (ECI) on trade balance in Sub-Saharan Africa (SSA). We utilize balanced annual panel data for 20 SSA countries from 2005 to 2024, obtained from the World Development Indicators. The Generalized Method of Moments (GMM) methodology is used to address endogeneity and unobserved heterogeneity. Empirical findings reveal a positive and statistically significant interaction between FDI and ECI. Specifically, the coefficient of the interaction term (FDI*ECI) is 0.217378, indicating that a simultaneous 10 percent increase in FDI inflows and ECI improves trade balance by approximately 2.2 percent. We recommend that SSA economies adopt integrated strategies that attract export-oriented FDI while promoting export diversification, industrial upgrading, and productive capacity development to achieve sustainable trade balance improvements.
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