ESTIMATING EXCHANGE RATE AND BILATERAL TRADE BALANCE RELATIONSHIPS: THE EXPERIENCE OF SUB-SAHARAN AFRICAN COUNTRIES

This paper examines the effects of exchange rate changes on the bilateral trade balance of ten African countries vis‐à‐vis the US using annual data over period 1977‐2002. Both the Johansen and panel cointegration tests find cointegration among the series. The country FMOLS results show that real exchange rate depreciation improves the trade balance in six of ten countries in contrast to Tanzania in which it worsens the trade balance, with no effect found in Ghana, Morocco and Senegal. Foreign real income improves the trade balance in two countries but worsens it in another three. Finally, domestic real income negatively affects the trade balance in four countries but improves it in another three. The three‐panel coefficients are correctly signed and significant at the 1% level.     

Income Convergence in African Countries: Evidence from a Stationary Test With Multiple Structural Breaks

This paper examines the catching‐up (stochastic convergence in real per capita income) hypothesis for 52 African countries with respect to the USA. over the 1969‐2011 period, using a highly flexible stationarity test. The empirical results show (i) that all African countries experienced at least one break, switching between catching‐up and divergence paths during the sample period; (ii) that structural breaks tend to coincide with political instability, trade liberalisation policies and terms of trade shocks; (iii) that among the 52 African countries studied, only five lie on the catching‐up path, while the remaining 47 diverge from the USA. Our results show that the economic performance of African countries fall far behind those of the USA and that the economic growth tragedy of Africa continues.     

Does China Transfer Productivity Enhancing Technology to Sub‐Saharan Africa? Evidence from Manufacturing Firms*

Abstract: This paper considers whether trade between China and sub‐Saharan Africa results in productivity‐enhancing technology transfers to sub‐Saharan African manufacturing firms. As trade flows between countries potentially results in interactions that lead to technological improvements in the production of goods and services, we parameterize the level of total factor productivity for African manufacturing firms as a function of foreign direct investment flow, and for the country in which it operates, trade openness with China, and its interaction with foreign direct investment. With micro‐level data on manufacturing firms in five sub‐Saharan African countries, we estimate the parameters of firm‐level production functions between 1992 and 2004. Our parameter estimates reveal that across the firms and countries in our sample, there is no relationship between productivity‐enhancing foreign direct investment and trade with China. In addition, increasing trade openness with China has no effect on the growth rate of total factor productivity. To the extent that total factor productivity and its growth is a crucial determinant of economic growth and living standards in the long run, our results suggest that increasing trade openness with China is not a long‐run source of higher living standards for sub‐Saharan Africa.     

Does Gender Inequality Reduce Growth in Sub‐Saharan African and Arab Countries?*

Abstract: This paper uses 1974 to 2001 panel data for 31 sub‐Saharan African and 10 Arab countries and Arellano–Bond estimations to empirically assess the impact on growth of an important indicator associated with MDG 3; namely the ratio of 15–24‐year‐old literate females to males. Our findings indicate that gender inequalities in literacy have a statistically significant negative effect that is robust to changes in the specification. In addition, it seems that gender inequality has a stronger effect on growth in Arab countries. Interestingly, we find that the interaction between openness to trade and gender inequality has a positive impact. This result suggests that trade‐induced growth may be accompanied by greater gender inequalities.     

A review of trade trends: South Africa and the Indian Ocean Rim

Since 1990, intense diplomatic efforts have taken place to secure and negotiate trade treaties with South Africa's traditional trading partners (the European Union, in particular) and those countries in close geographic proximity. This article examines South Africa's trade links with some of its ‘non‐traditional’ trading partners, in particular the countries of the Indian Ocean Rim (IOR), in an attempt to ascertain the nature of the trade and its importance vis‐a‐vis the rest of the world. An examination of trade data for the years 1992‐5 indicates that trade with the IOR consists mainly of the mutual exchange of natural resource products and that this trade is growing much faster than South Africa ‘s trade in general. Given this trade dynamism, South Africa should pay increasing attention to international relations with these countries. South African trade with the Rim was also found to differ from trade with the rest of the world in that it comprises the mutual exchange of natural resource‐based products. This research shows that our imports and exports are positively related to the gross domestic product of our trading partners, and negatively related to their population size and distance from South Africa. Also, more open economies have absorbed more exports from South Africa. There is some ambiguity as to the role that distance plays in determining the level of imports into this country. The intensity indices computed in this article have to be viewed in the light of this research.     

Bilateral Trade Performance in West Africa: A Gravity Model Estimation

This study provides empirical insights on the functioning of regional trade agreements within the Economic Community of West African States (ECOWAS) by identifying bilateral trade barriers that affect the extent of trade flows among member countries. Also, it highlights some trade barrier indicators that are rarely covered in extant studies, such as the multilateral resistance term, the extent of trade complementarity, and the presence of economic integration agreements among ECOWAS member countries. We then provide augmented gravity model estimation on the determinants of bilateral trade in the region. We find, among other things, that trade complementarity had a positive and significant effect on bilateral trade within the sub‐region region. Other important determinants of intra‐regional trade include multilateral trade resistance and economic integration agreements — meaning that countries with some kind of agreement like the West African Economic and Monetary Union (WAEMU) tend to trade more among themselves than other member countries.     

A social network analysis of the structure and evolution of intra‐African trade

We used social network analysis to examine the country attributes and patterns of intra‐African trade between 2002 and 2017. The results showed that, generally, trade networks in Africa have become denser, and have the characteristics of the core‐periphery structure and small world phenomenon. Trade imbalances are widely found among African countries with the evidence that structure holes exist in intra‐African trade networks highlighted by the motif detectors. Using Quadratic Assignment Procedure, we found that countries that possess closer economic, geographic and cultural distance, but longer institutional distance, are more likely to form trade networks. However, many countries and the regional economic communities on the continent, have not adequately manifested these favourable characteristics for enhancing intra‐African trade. The implications are proposed that countries should develop their strategies, expedite structural adjustment, and foster competitive industries to cope with the external competition and seize opportunities of regional integration brought by the African Continental Free Trade Area (AfCFTA) agreement. It is also critical to efficiently address the overlapping problems of regional economic communities and intensify their coordination with AfCFTA.     

The impact of trade facilitation factors on South Africa's exports to a selection of African countries

Economic growth can be enhanced through increased trade among countries, provided the correct institutional structures are in place. A country's trade is dependent not only on its own trade facilitation reforms but also on those of the trading partners. This paper, using an augmented gravity model, examines trade facilitation factors that impact on South Africa's exports to other selected African countries. The results of the estimation reveal the following. An improvement in the customs environment within the importing country provides the largest gain in terms of increasing trade flows, followed by the regulatory environment and domestic infrastructure. Furthermore, adjacency and common language impact positively on South African exports, while distance between countries impacts negatively on it. Being part of the Southern African Development Community is also enhancing exports from South Africa, compared with being part of the East African Community.     

Regional Integration,Bilateral Diplomacy and African Trade: Evidence from the Gravity Model

The paper examines the impact of two main instruments of economic diplomacy — regional integration and commercial diplomacy on export flows among African states. We test whether there is any evidence of a trade‐off or complementary interaction between these two instruments in trade facilitation using the gravity model for 45 African states over the period 1980–2005. The results show that bilateral diplomatic exchange is a more significant determinant of bilateral exports among African states compared to regional integration. We also find that the trade–stimulating effect of diplomatic exchange is less pronounced among African countries that shared membership of the same regional bloc.     

Regional Trade Arrangements in Africa: Past Performance and the Way Forward

Abstract: Regional trade arrangements (RTAs) in Africa have been ineffective in promoting trade and foreign direct investment. Relatively high external trade barriers and low resource complementarity between member countries limit both intra‐ and extraregional trade. Small market size, poor transport facilities and high trading costs make it difficult for African countries to reap the potential benefits of RTAs. To increase regional trade and investment, African countries need to undertake more broad‐based liberalization and streamline existing RTAs, supported by improvements in infrastructure and trade facilitation. Early action to strengthen the domestic revenue base would help address concerns over revenue losses from trade liberalization.     

The Future of African Trade with China under Alternative Trade Liberalization Schemes

Abstract: Evidence is gradually being built up in Africa on the full extent and rapidly growing role and interest of China in Africa. The global trade integration under the Doha Round, which is considered as the channel for fostering outward‐oriented development and generates economic and social benefits, is expected to effect more African trade with China. Our results show that with an agreement for the Doha Round, China will achieve its dominance on global trade faster than in the baseline scenario where no agreement is expected to be signed. In the long term, this impressive growth in Chinese exports to Africa is not a real value added, as China is already taking the place of the other major trade players both in African markets as well as in the markets of other regions and countries. In other words, China is expected to achieve in 10 years (2010–2020) what initially was expected to be achieved in 20 years in case of no agreement under the Doha Round, where a simple linear estimation on the evolution of Chinese exports is carried out. Our results also show that even in the case where China will offer more market access for African countries, the situation will not improve much for most of them. The reason is that Africa is still suffering from small productive capacities and a low level of diversification of its economy.     

Gains from Trade: Implications for Labour Market Adjustment and Poverty Reduction in Africa

Abstract: This paper reassesses the gains from trade for sub‐Saharan Africa, and draws their implications for labour market adjustment and poverty reduction. It reviews previous studies on multilateral liberalization, focusing on the findings from Computable General Equilibrium (CGE) models with relevance to African economies. The implications of these findings for poverty reduction are discussed. Our own CGE exercise supports the hypothesis that African countries cannot expect substantial gains from further multilateral liberalization. Moreover, given the sharp contraction of import‐competing sectors in response to trade liberalization in many African economies, coupled with insufficient compensation through labour market adjustments in other sectors, this study suggests that the ultimate impact on poverty reduction is likely to be small or even negative.     

Revenue Mobilization in African Countries: Does Natural Resource Endowment Matter?*

Abstract: Natural resource endowment offers great opportunities for achieving high levels of growth and development, notably via fiscal revenue mobilization throughout the entire chain of operations from exploration to production to exports. In the case of African countries, however, resource‐rich countries have not yet been able to take full advantage of their resource wealth to mobilize government revenue. In fact it appears that they have often been outperformed by their resource‐scarce counterparts in this regard. Is the low revenue performance a result of distorted incentives induced by the natural resource bonanza or the lack of capacity to harness the revenue potential from the natural resource industry? This paper explores these questions and provides some empirical evidence based on data from a sample including African countries as well as countries from Latin America, Asia, and the Middle East for the period 1980–2007. The paper undertakes an econometric analysis to examine the factors that determine revenue performance in African countries from a comparative perspective, with a focus on the role of natural resource endowment. The results are consistent with the evidence from the literature, especially with regard to the role of economic structure (notably the share of agriculture in GDP), the tax base (per capita income), and trade. We compute an index of revenue performance that relates the actual revenue to the level predicted by the econometric model and we find that African resource‐rich countries have performed poorly relative to their resource‐scarce counterparts and compared to the oil‐rich Middle Eastern countries. The paper concludes with some policy implications for African countries.     

Estimation of the East African Community's trade benefits from promoting intra‐regional trade

In the literature on economic integration, the optimum currency area (OCA) theory says that there should be a high degree of trade between potential members of a monetary union for them to benefit from the use of a single currency. This study uses an augmented gravity model of trade to estimate the East African Community's (EAC) trade effects, as this community decided to participate in a monetary union by 2024. The study uses the fixed effect filter (FEF) estimator, which follows a two‐step approach and outperforms the standard fixed effects (FE) estimator. The results indicate that EAC has the potential to increase trade among partner states by 122% more than expected from the normal trade levels. The study, therefore, supports the ongoing East African Monetary Union process. However, to improve the likelihood of creating a more sustainable monetary union, the study recommends these countries to primarily focus on the full implementation of the customs union and common market steps. The main contribution of this study is that it provides robust estimates of the EAC's effects on intra‐regional trade using more recent data and updated econometric techniques.     

THE GENERATIVE POWER OF AIR FREIGHT IN THE TRADE OPENNESS – ECONOMIC GROWTH NEXUS IN AFRICAN COUNTRIES

Foreign trade matters considerably more than ever in today's integrated economies, and the wealth of benefits afforded by air transport is one of the cornerstones of international trade. Therefore, to shed light on the precise role of air cargo, seen as an important motor of growth, this paper provides an empirical model to examine the relationships among trade openness, air freight volume and GDP per capita using panel cointegration techniques for a sample of Economic Commission for Africa (ECA) countries during the 1970‐2002 period. The analysis substantiates that there are cointegrated relationships among the three variables and that they are bound together in a long‐run equilibrium. Furthermore, evidence from fully modified Ordinary Least Squares panel estimations also indicates that positive trade and air freight shocks contribute to real GDP per capita. In addition, improvements in air cargo services are accompanied by an increase in trade openness in ECA countries and vice versa. These results underscore the important role of air freight and demonstrate that it should not have been overlooked in earlier studies. Finally, the empirical findings have important policy implications for our sample countries.     

The Role of Trade Policies in Building Regional Value Chains – Some Preliminary Evidence From Africa

Regional value chains (RVCs) are considered as an important step towards greater integration into global value chains (GVCs), but African countries trade very little value added with each other. Based on the UNCTAD‐Eora GVC database, this paper estimates a panel model from 2006 to 2012 for 37 African countries and sheds light on the role of trade costs in building RVCs in Africa. First evidence is provided for a significantly negative effect on foreign value added of charged tariffs on capital goods and higher time to trade. In addition, higher regulatory quality and a stronger telecommunication infrastructure seem to be positively correlated with a country's ability to participate in RVCs.     

Measuring Multi‐Membership in Economic Integration and Its Trade Impact: A Comparative Study of ECOWAS and SADC

One of the intriguing aspects of African regional trade agreements (RTAs) is the extent of multi‐membership, where many African countries are members of more than one RTA. Using a gravity model for 25 countries and the years 1980‐2006, we measure the extent of multi‐membership and compare its impact in two major African regional blocs, Economic Community of West Africa States (ECOWAS) and Southern Africa Development Community (SADC). We find that the impact of multi‐membership critically depends on the characteristics of the multi‐membership of regional integration initiatives. We find a positive impact if an additional membership complements the integration process of the original regional integration initiative: overlapping memberships had a much stronger and significant positive effect on bilateral trade within ECOWAS compare with an insignificant impact within the SADC.     

Trade Creation and Trade Diversion Effects in the Economic Community of Central African States

This paper analyzes trade creation and trade diversion effects in the Economic Community of Central African States (ECCAS) between 2007 and 2016 using the Gravity Model. The results show that variables like GDP, population, bilateral distance, political stability and corruption are crucial for the determination of bilateral trade flow. More importantly, the study finds that there is neither trade creation nor trade diversion in the ECCAS region. Thus, the FTA in ECCAS did not lead either to reinforce intra‐trade or to emphasize trade with non‐member countries. Yet, the Economic Community of Central African States (CEMAC), the Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC) have been trade creating during the aforementioned period. Therefore, the paper recommends policy makers to promote more regional integration within ECCAS notably through the construction of intra‐zone communication means and the effective establishment of the free movement of people and goods within the region.     

ECONOMIC INTERDEPENDENCE AND INTERNATIONAL INTERACTIONS : THE IMPACT OF MARKET POWER ON DYADIC CONFLICT AND COOPERATION

This article presents a theoretical approach to analysing how a country with market power could affect international relations. The liberal view and trade‐conflict model claim that if countries seek to protect their trade gains, trade will reduce conflict between pairs of countries, designated “actors” and “targets”. The main purpose of this paper is to examine the effect of market power on the gains from trade. Once the distribution of trade gains is changed between countries, the conflict and cooperation relationships between countries will also alter. We apply the trade‐conflict model to derive two propositions as follows: (1) the more monopoly power over exports a monopolistic target has, the greater the amount of actor‐to‐target conflict; (2) the more monopsony power over imports a monopolistic target has, the greater the amount of actor‐to‐target conflict. To summarise, these hypotheses will predict that a country with market power reaps the gains from trade and will exhibit less conflict and more cooperation, whilst the country that is exploited will exhibit more conflict and less cooperation.     

Impacts of the Rise of China on Developing Country Trade: Evidence from North Africa*

Abstract: Despite the global financial and economic crisis, China has continued to experience strong export‐driven growth and, indeed, became the world's largest exporting country in 2009. This rise of China in international markets presents African countries with growing competition in their home and export markets, but also with new opportunities. This paper focuses on the impacts of these developments on countries in North Africa, which are directly affected by the prominence of Chinese manufacturing. In particular, the analysis addresses two policy questions: First, is competition from China leading to substantial displacement of resources that incur significant adjustment costs while moving to new activities, or are there opportunities to exploit finer patterns of specialization that entail less disruption? And second, will policies that mitigate the impact of competition from China limit the longer‐term capacity to exploit new opportunities in the global market? The findings from the empirical analysis suggest that policy makers can support North African producers in the increasingly fierce competition with China by reviewing the regulatory and incentives environment, reducing trade logistics costs, and broadening trade promotion efforts to non‐traditional markets.