The Unassuming Economist

From a paper by Afees Salisu and Etsubdink Sileshi:

“In recent decades, many African countries have been experiencing structural transformation. During
this same period, these countries were witnessing unfavorable external balance. This has challenged
conventional wisdom as these two are considered to be moving in opposite directions. This study
examines the effect of the shift in sectoral composition of African economies on their external balance
position. Using balanced panel data for 38 countries from 2000 to 2022, we estimate the effect of
structural change measured by sectoral shares in value added to GDP on external balance (% GDP).
Our methodology includes both static and dynamic panel models. However the dynamic panel models(GMM) are found to be the appropriate ones. The results show that agricultural sector’s share of
GDP has a negative effect on external trade balance, while the industrial sector is found to have a
positive impact. These results are robust to various model specifications. For additional robustness
check, we also used control variables- foreign direct investment to GDP ratio and official exchange rate.
Our results are consistent in sign, magnitude of coefficients and significance levels. As far as external
trade balance is concerned, African countries should give the necessary support to the expansion of
industrial sector. We also advise future researches to examine the composition of the each sector in
Africa and its implication for the external balance.”