Does Foreign Direct Investment Influence Industrialization in Sub-Saharan Africa? The Moderating Role of Trade Openness

Countries in Sub-Saharan Africa (SSA) continue to seek pathways that can accelerate industrial growth. Among the various drivers, foreign direct investment (FDI) has emerged as a key determinant of industrialization in the region. However, previous studies on the FDI–industrialization nexus have largely overlooked the moderating role of trade openness. This study therefore examines the impact of FDI on industrialization in SSA, with particular attention to the role of trade openness. Using panel data from 30 SSA countries covering the period 2000 to 2022, the analysis employs both Fixed Effects and Random Effects estimators. The results indicate that FDI inflows significantly and positively influence industrialization, whereas FDI outflows exert a negative effect. Moreover, trade openness moderates this relationship by strengthening the positive effect of FDI inflows and intensifying the negative effect of FDI outflows on industrialization. These findings highlight the importance for SSA governments to design and reinforce policies that encourage FDI inflows and expand trade openness in order to foster industrial development. In addition, the results underscore the need for policies that support local industries, thereby enhancing their competitiveness and capacity to attract foreign investors.