Growth by Destination (Where You Export Matters): Trade with China and Growth in African Countries

Abstract

I perform Arellano-Bond GMM estimations using panel data over the period 1995-2008 and explore the growth effects of Africa’s trade with China, distinguishing between the effect of imports and the effect of exports, and controlling for the role of export concentration. Four important results are obtained from the empirical analysis. First, there is no empirical evidence that exports to China enhance growth unconditionally. Second, the results suggest that export concentration enhances the growth effects of exporting to China, implying that countries which export one major commodity to China benefit more (in terms of growth) than do countries that have more diversified exports. Third, contrary to the widely held view that increasing imports from China would have a negative effect, the empirical results show that the share of China in a country’s total imports has a robust positive effect on growth. Finally, the evidence suggests that there is an inverted-U relationship between exports to developed countries and growth in Africa. Overall, the results seem to provide support for the hypothesis of growth by destination (i.e., that where a country exports matters for the exporting country’s growth and development) in the sense that exports to more developed (OECD) countries has (at least up to a threshold) a positive impact on growth but no such effect is unambiguously (unconditionally) shown in the case of exports to China. I draw on these findings to outline some policy implications.

JEL Classification: F1, F41, O2, O4