The Determinants of Export Performance in a Small Open Economy: The Case of Sierra Leone

The main objective of this paper is to investigate the determinants of export performance in Sierra Leone. The study uses annual time series data from 1980 to 2018 within the ARDL bound testing framework. The stationarity test indicates that all the variables are I(1) series, whilst the bound test result shows there is cointegration. The result reveals that FDI, REER and dummy variable for war are the main determinants of export performance in the long run. Also, the result confirms that FDI and inflation are the significant variables influencing export performance in the short run. Furthermore, with a coefficient of 0.51, the result indicates that 51 percent of any disturbance emanating from previous year’s shocks will be corrected in the current year. The diagnostic test reveals that, approximately 69 percent of the variation in export performance is determined by the exogenous variables as evident by the R-square value. Overall, the probability value of the F-statistic (0.000000), shows that model is significant. The results of CUSUM and CUSUMSQ statistics indicate parameter stability. In order to improve the country’s export performance, the paper recommends that government should ensure macroeconomic stability, design incentive mechanisms to encourage foreign direct investment and also maintain a politically stable economy.