Economic complexity in Africa: The role of trade and governance institutions

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Abstract
It is evident that the role of trade and governance institutions in enhancing economic complexity in Africa is still under serious debate regarding whether it is detrimental or beneficial to economic growth. The purpose of this study is to investigate how trade and governance institutions influence economic complexity in Africa using a system Generalized Method of Moments (system GMM) and 31 African economies for the period 2011-2020. Beyond these key variables of interest, our study includes some macroeconomic variables in the model, such as international tourism arrivals, infrastructural development, and human capital development, to ensure robustness of the results. The results of the system GMM reveal that trade promotes economic complexity in Africa, while institutional quality indicators such as control of corruption, rule of law, government effectiveness, regulatory quality, political stability, and absence of violence/terrorism, including voice and accountability, are predominantly negative in improving economic complexity on the continent. Further results of system GMM also reveal that infrastructural and human capital developments are relevant drivers of economic complexity, while international tourism arrivals played a detrimental role. This study proposes that African leaders and policymakers across the continent should come together to advance free trade and advocate reform for strong institutions through the instrumentality of the African Union.