Openness and Output Volatility in Sub-Saharan African Countries: Does Economic Freedom Matter?

Dagim Tadesse Bekele (Principal, Research and Strategy Officer, Awash Bank Addis Ababa, Ethiopia)
Adisu Abebaw Degu (Senior, Policy Development Officer, Ethiopian Capital Market Authority (ECMA), Addis Ababa, Ethiopia)

JDE (Journal of Developing Economies)
Vol. 11 No. 1 (2026)

Objective: The role of financial and trade openness in output volatility has been widely debated, while the moderating role of economic freedom remains underexplored. This empirical study examines how economic freedom shapes the effects of financial and trade openness on output volatility in Sub-Saharan African countries. It focuses on overall economic freedom, financial freedom, and trade freedom, and provides empirical evidence relevant to volatility in developing economies. Design / Methods / Approach: Using panel data from 2012 to 2021, the study applies a two-step system Generalized Method of Moments estimation technique to control for endogeneity, unobserved heterogeneity, and dynamic effects. Measures of financial openness, trade openness, and economic freedom indices are included, along with interaction terms to capture the conditioning role of economic freedom. Findings: The result suggests that financial openness and trade openness have a significant positive effect on output volatility. But their role has changed to stabilizing when they interact with economic freedom indexes. Specifically, the impact of financial openness on output volatility is negative and statistically significant when both economic and financial freedom are high. Similarly, when there is more economic freedom and trade freedom, trade openness plays a minimizing role in output volatility. Originality/Value: This study is among the first to examine the mediating role of economic freedom in the relationship between openness and output volatility in SSA. By moving beyond direct effects of openness and disaggregating economic freedom into specific components, the research provides new institutional insights into the openness–volatility nexus in an underexplored regional context. Practical / Policy Implications: The results imply that trade and financial liberalization without institutional support can increase macroeconomic instability. Policies that strengthen economic and financial freedom should accompany openness reforms to improve shock absorption and promote macroeconomic stability.