Essays on technological trade composition and capital goods imports

Abstract

Recent international trade literature emphasised the importance of countries’ technological trade composition structures (both exports and imports) in enhancing economic growth and development. Yet Africa’s trade has been analysed at a macroeconomic aggregate level and export-led growth dominates the literature. The role played by imports is almost completely neglected, despite the continent being far removed from the world technology frontier. In the literature, those countries that are far removed from the technological frontier can benefit from importing capital technologies to the extent that can enable their ability to export such goods.

The objectives of this thesis are 1) to examine the structures of Africa’s technological trade composition (both exports and imports) and determine how they have changed over the period 1980-2015 in relation to developed and other developing regions; 2) to investigate the effects of importing capital goods on the technological export composition; and (3) to establish the determinants of capital goods imports in developing countries, particularly in Africa.

The first paper provides a comprehensive analysis of Africa’s trade composition spanning 1980-2015. I decompose Africa’s trade into five categories: primary goods, resource-based, low, medium, and high technology manufactured goods. I find that Africa’s imports are concentrated in capital goods and its export composition is highly concentrated in primary goods, which has contributed to the decline in Africa’s share of global exports. I also find that regions within Africa have similar technological trade composition structures.

The second paper investigates the effect of capital goods imports on technological export composition in developing countries. The findings reveal that capital goods imports have a positive effect on technological export composition in developing countries. The findings also show that the positive effect of capital goods imports on technological export composition is larger in developing countries relative to developed economies. In Africa, capital goods imports also have a positive effect on technological export composition. However, the positive effect of capital goods imports on high technology exports is smaller in Africa relative to the average for other developing countries. The third paper investigates the determinants of capital goods imports in developing countries. The findings reveal that financial development, infrastructure investment, and institutions are important determinants of capital goods imports in developing countries. The findings also indicate that financial development has greater benefits in developing countries relative to developed countries. In Africa, financial development and infrastructure investment are key determinants of capital goods imports, with infrastructure investment being critical in landlocked nations.

The overall findings in this thesis highlight the importance of capital goods imports in achieving export composition diversification, and hence economic growth. Furthermore, the findings reveal the importance of development factors that can complement capital goods imports, which can result in increased export composition diversification and economic growth. The findings may assist policymakers to (1) examine national trade structures, specifically to see how faster they have transformed over time; (2) understand the source of Africa’s underperforming trade, which is highly documented in the literature; (3) have a good understanding of the linkages between capital goods imports, technological export composition, and the rest of the economy; and (4) attain the best trade and industrial policies for their economies.