Determinants of export diversification in Sub-Sahara African region: a fractionalized logit estimation model

The paper uses panel data of 32 countries from 1995 to 2013 to investigate the determinants of export diversification in Sub Saharan Africa (SSA). As opposed to previous studies on determinants of export diversification, the empirical model was estimated using the fractionalized logit technique based on the fact that the dependent variable (Herfindahl-Hirschman Concentration Index) is fractional. The average statistics clearly showed that among the countries used in this study, the most diversified economies are South Africa (0.14), Kenya (0.22) and Tanzania (0.22), while the most concentrated are Angola (0.92), Nigeria (0.85) and Chad (0.80). The results of our empirical analysis revealed that overall export diversification is significantly promoted and determined by trade openness, value added in agriculture, value added in manufacturing and foreign direct investment; while GDP per capita was a significant deterrent to export diversification in this region. Other results showed that foreign aid, official exchange rate and gross domestic investment were insignificant determinants of export diversification in the selected economies. Our results therefore suggest that to foster export diversification in the Sub Saharan Africa region, it is imperative to promote regulatory reform efforts that facilitates international trade, improve foreign direct investment and promote infrastructural development and performance in the agricultural and industrial sectors.