Impact of FDI on African International Trade in the 21st Century

Abstract African foreign direct investment inflows have shown mixed trends over the past decade, with specific periods of stagnation and other periods of growth. Despite the fluctuations, Africa has attracted more foreign direct investments (FDIs) in the 21st century than in prior years. In the same period, Africa further witnessed a rise in exports and imports although fluctuations have been noted post-2020 due to the COVID-19 pandemic. The question is as follows: to what extent has the growth of FDI influenced international trade in African economies post the year 2000? The study estimated the impact of FDI inflows on exports and imports in 38 African economies from 1999 to 2023 using the pooled mean group autoregressive redistributed lag model (PMG-ARDL). The results indicated that a 1-unit increase in FDI in African states significantly increases exports by 0.68 units and imports by 0.96 units. The study concluded that FDI inflows complement international trade and recommended that African economies should capitalise on existing trading blocs such as the African Continental Free Trade Area (AfCFTA), promote one efficient border and customs systems to encourage the smooth flow of exports and imports and improve infrastructure such as transport, digital networks and promote FDI that is efficiently seeking.