Structural Change in Africa: The Role of North–South and South–South Trade

ABSTRACT This paper investigates the impact of imported capital and intermediate inputs on structural change in African economies, focusing on the origin of imports—Global North versus Global South—and the moderating role of domestic absorptive capacity. The paper relies on a panel dataset comprising 52 African countries from 2000 to 2022 and a two‐stage least squares (2SLS) estimation strategy. We find that imported inputs from the Global South consistently positively affect structural change, due to the alignment of those inputs with the technological realities and production structures of African economies. Disaggregated results further reveal that these effects are stronger when imported capital (intermediate) inputs are sourced from the emerging Global South economies (relatively less‐industrialised Global South economies). Absorptive capacity dampens these positive effects, suggesting that the structural change effect of imported inputs from the Global South may be especially effective in lower‐capacity environments. In contrast, while intermediate inputs from the Global North also foster structural change unconditionally, the benefits of capital imports from the Global North materialise only when African economies possess high levels of domestic absorptive capacity. The findings underscore the importance of a nuanced trade policy that leverages the strengths of both trade relations to advance Africa's structural change.