Services Trade and Institutional Quality: Evidence from Africa

Africa seems to operate at a different structural path of economic development than expected. Unlike the long-awaited increase in manufacturing, services are bourgeoning on the continent and so increases the services trade. Our article points attention to this new phenomenon and investigates whether this new type of African trade promises better effects on institutional quality than traditionally dominant natural resources trade, leading often to devastating effects. If proved, this could have significant policy implications. We work with panel data of 40 African countries within the period 2005-2019 and use the structural equation model and the maximum likelihood method to estimate the effects of services trade in Africa on three selected variables of institutional quality. Our results show that services trade seems to be a statistically significant and positive determinant of institutional quality in Africa. However, the effects are not equal across the investigated service types.