Globalization and structural change in Sub-Saharan countries: A PMG/ARDL approach

Abstract

This research aims to analyze the effect of globalization on the patterns of structural change in Sub-Saharan (SSA) countries. Two types of variables including trade volume and capital flow (FDI inward) are used to measure globalization. As methodological approach, we first determined patterns of structural change by using the formula of the decomposition of labor productivity growth. Secondly, as structure transformation, a dynamic heterogeneous panel ARDL model is used. Data come from Groningen Growth and Development Center (GGDC) data base, which provides employment and real valued added statistics for 16 SSA countries disaggregated into 10 sectors, from 1996 to 2018. The main results show that the two instruments of globalization, FDI and trade, have differentiated effects on the pattern of structural change in SSA countries. Inward FDI has a positive and significant effect on structural change in SSA countries. While trade contributes negatively and significantly to structural transformation in these economies. Thus, unlike trade flows, FDI has made a positive contribution to improve labor productivity in the economies of sub-Saharan African countries, by inducing a reallocation of labor from the low-productivity agricultural sector to the high productivity non-agricultural sector.

Keywords: Globalization, Structural Change, Sub-Saharan countries