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We investigate the effects of trade openness and international financial inflows (including foreign
direct investment, remittances and foreign aid inflows) on Africa’s productive capacity and
how governance institutions are moderating these effects. We adopt the dynamic system GMM
modelling framework and the Bun and Carree (2005) bias-corrected least square dummy variable
estimator with a panel of 43 African economies. We also use the Driscoll and Kraay (1998)
standard error fixed effect estimation, which controls for cross-sectional dependence to provide
robustness check. We find that trade openness and the various components ofinternational financial
inflows are significant drivers of productive capacity in Africa, and that governance institutions
are moderating and enhancing their effects. We also find that renewable energy consumption,
human capital development and infrastructure development are promoting Africa’s productive
capacity. We highlight the policy implications of these findings, which among others, encourage
policymakers and leaders in Africa to focus on policies that can enhance cross border trade, attract
international financial inflows and entrench high-quality institutions
