Access to domestic credit key to export diversification

Access to domestic credit key to export diversification

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  • August 10, 2019
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The implementation of policies that ease access to domestic credit in Africa will, among others, accelerate the pace of export diversification (ED) through the provision of capital needed for entrepreneurial activities, a new research published in the Journal of African Business, the official journal of the Academy of African Business and Development, has shown.

Such a policy, the researchers posit, will help countries with less developed financial institutions and limited access to international markets to diversify their economies toward attaining the economic benefits associated with diversification.

The researchers, Prof. Augustin Fosu and Abdul F. Abass, found a robust evidence supporting the importance of domestic credit for African countries, while its role in other countries seems rather marginal.

“Human capital, in the form of years of schooling, governance as measured by constraint on the chief executive branch of government, and being land-locked, all exert significant effects on ED among African countries,” the research titled “Domestic Credit and Export Diversification: Africa from a Global Perspective,” noted.

According to Prof. Fosu, while recent theoretical and empirical studies have emphasized the importance of ED in economic growth and development, African countries have continued to have the highest levels of export concentration in the world.

The findings of their five-year panel regression analysis for the 1962–2010 period involving 80 countries around the world, of which 62 are developing and 29 African countries, point to the dominant role of domestic credit in Africa vis-à-vis other countries globally.

Prof. Fosu believes their finding for domestic credit echoes the need for African countries to encourage policies aimed at deepening the financial markets and ensuring proper allocation of financial resources to the real economy, i.e., if Africa’s goal to close the global gap in ED is to be achieved.

Prof. Fosu holds positions in the University of Ghana, the University of Pretoria, and the University of Oxford. He is the editor-in-chief of Journal of African Trade, and a managing editor of Journal of African Economies. He has served on the editorial boards of journals such as Journal of Development Studies, Oxford Development Studies, World Bank Economic Review, and World Development.  Some of his previous positions include: Deputy Director, UN University-WIDER; Senior Policy Advisor/Chief Economist, UN Economic Commission for Africa; and Director of Research, African Economic Research Consortium. He is a winner of the Elsevier Atlas Award for his article, “Growth, Inequality, and Poverty Reduction in Developing Countries: Recent Global Evidence.”

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