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Intra-African trade

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Abstract

The intra-continental trade share in Africa is only 12%, compared to 47% in North America, 53% in Asia, and 69% in Europe. This paper shows that the lack of intra-African exports cannot simply be explained by standard gravity equation terms. The analysis investigates possible explanations and identifies factors that promote trade between African countries. Intra-African exports are found to disproportionately increase with road infrastructure, trade agreements, and declining trade costs. Diversifying the domestic economy away from natural resources and towards services is also associated with more intra-African trade. These results can guide efforts to promote African economic integration.

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Notes

  1. Calculations using the World Development Indicators database over the 1984–2016 sample period.

  2. Kofi Anan Speech at the UN Trade and Development Conference, February 11, 2000.

  3. See “Intra-African Trade is Key to Sustainable Development - African Economic Outlook,” African Development Bank, May 23, 2017; “Africa’s Greatest Economic Opportunity: Trading with Itself,” Kingsley Makhubela, World Economic Forum, January 16, 2018; and also Bosker & Garretsen (2012) who find a positive correlation between African economic development and market access, particularly intra-African market access.

  4. Cervigni, Raffaello, Andrew Michael Losos, James L. Neumann, Paul Chinowsky. 2016. “Enhancing the Climate Resilience of Africa’s Infrastructure: The Roads and Bridges Sector.” The World Bank working paper 110137.

  5. Another potential explanation is that informal trade leads to an underestimate of intra-African trade flows. While it is challenging to obtain measures of informal trade, its prevalence likely depends on many of the factors (i.e. inefficiencies, red tape, and trade agreements) which are examined in this analysis.

  6. This is a good example of an important topic that has been understudied due to empirical challenges (i.e. a ’sin of omission’ according to Akerlof, 2020).

  7. Infrastructure (Storeygard 2016), trade costs (Atkin & Donaldson, 2015), and search and contracting frictions (Startz 2018) all influence intra-national African trade. This paper differs from these studies by focusing on international trade and especially the destination of these export flows.

  8. Land phones, internet, and air infrastructure are found to be insignificant predictors of bilateral trade and data on rail and port infrastructure is sparse.

  9. Diversification of the domestic economy away from agricultural and natural resource products may also promote economic growth (Hausmann et al., 2007). Collier & Venables, (2007) also argue that African countries should diversify, but into manufacturing rather than services.

  10. This is consistent with findings showing that trade facilitation, which refers to declines in non-tariff border costs due for instance to improvements in customs efficiency and infrastructure, increases trade (Wilson et al., 2005; Portugal-Perez & Wilson, 2012; Ferro et al., 2015).

  11. See Easterly & Reshef (2016) for examples of African export success stories.

  12. Redding & Venables (2004) have a panel data set but use a repeated cross-sectional specification that does not account for bilateral-pair fixed effects. In addition to using a more rigorous estimation strategy, this paper picks up where Redding & Venables (2004) left off by identifying the “domestic factors (some of them subject to policy control)” that “determine export performance” in Africa.

  13. This is consistent with results showing that the factors influencing foreign direct investment differentially affect African countries (Asiedu, 2012).

  14. Typically papers focus on one preferred explanation and largely ignore other possible determinants.

  15. The WTF data set improves upon the underlying United Nations COMTRADE data and is available at: https://www.robertcfeenstra.com/data.html. The WTF data overcomes data quality issues associated with the COMTRADE data, such as discrepancies in the importer and exporter reports (Feenstra et al. 2005), and it avoids the numerous zeros in the African bilateral product-level export data. While the COMTRADE and BACI (from CEPII) data sets do have product level trade flows, this is not needed for this analysis on intra-African trade and the latter data set is only available post-1995.

  16. See Table A1 in the appendix for the sample of African countries included in the analysis.

  17. This data is provided by the Kellogg Institute at the University of Notre Dame.

  18. Note that some types of agreements are only relevant for trade between an African and non-African country (i.e. non-reciprocal agreements) while others are only relevant for trade between African trading partners (i.e. customs unions). There is also information in the EIA database on common markets and economic unions but these are rare in Africa.

  19. See the data appendix A.6 for additional data details.

  20. The network of paved roads does not increase exports above and beyond the impact of the overall network of roads. The WDI also has some information on rail lines and shipping container traffic but due to severe data limitations (many African countries have no railroads or ports) these variables are less useful for this analysis.

  21. See the appendix section A.6 for additional data details.

  22. See Table A4 for the list of European colonizers, African colonies, and the dates of independence since 1900.

  23. Note that the shares are similar in North America, Asia, and Europe, despite the fact that the number of countries within these continents vary. The intra-continental trade share in South America (21%) is also much higher than in Africa.

  24. The growth of North American and Asian supply chains likely contributes to the rise in these intra-continental trade shares.

  25. Eswatini (57%) and Togo (45%) are the only African countries with a higher intra-African export share.

  26. South Africa’s intra-African export share is 21%.

  27. The intra-African trade share is also low in other oil producing countries (i.e. 2% in Libya, 3% in Angola, 3% in Algeria, and 10% in Egypt). Results in Table 4 confirm that exports to non-African countries disproportionately increase with growth in the natural resource sector.

  28. Carrere (2006) demonstrates the benefits of using panel data when studying the impact of trade agreements.

  29. Focusing on uni-directional trade is more consistent with the goal of this analysis and it avoids the “silver medal mistake” identified by Baldwin & Taglioni (2007).

  30. The analysis also includes trade agreements and years since independence from a European colonizer, both of which vary at the exporter-importer-year (ijt) level. Conditions in the importing country (\(X_{jt}\)) will be accounted for using importer*year fixed effects.

  31. Note that the\(X_{it}*AfricanImporter_{j}\) interaction variables do survive the exporter*year fixed effects because they vary by importing country.

  32. This finding is broadly consistent with Atkin and Donaldson (2015), who show that intra-national trade costs are 4–5 times larger in African countries than in the U.S.

  33. Together with the country-pair fixed effects, there are over nine thousand dummy variables included in this regression.

  34. Furthermore, lower tariffs can reduce incentives for informal trade and thus increase measured trade flows.

  35. Consistent with Head & Mayer (2014), trade agreements have a more positive impact on trade when estimated using an ordinary least squares (OLS) approach rather than the PPML estimation strategy.

  36. Since non-reciprocal agreements and customs unions are with either non-African or African countries but not both, it is impossible to interact these types of agreements with the binary African importer variable.

  37. South Africa, for instance, transitioned from having no trade agreement with Tanzania to a PTA in 2001. On the other hand, many African countries transition from non-reciprocal agreements to PTAs with non-African countries, which can explain the negative coefficient on the uninteracted PTA variable in column 2. For instance, South Africa moved from a non-reciprocal agreement with the U.K. to a PTA in 2010.

  38. Note the interaction coefficient on FTAs is negative and weakly significant. These agreements are less common (Table A5) and the benefits of moving from a PTA to a FTA with another African country are less clear.

  39. The inclusion of other infrastructure measures (i.e. rail, ports, and paved roads) reduces the sample size in half and none of these factors have a significant impact on exports.

  40. Using a cross-sectional OLS gravity specification without any fixed effects, Piet et al. 2010 also find that roads are important in promoting trade in Africa.

  41. It is worth noting that in some situations, corruption may actually help facilitate trade, especially if it allows firms to evade high tariff barriers (Dutt & Traca, 2010, Sequiera & Djankov, 2014, Olney, 2016; Sequeira, 2016).

  42. The point estimate of −0.42 shows that a standard deviation increase in trade costs (of 0.42) is associated with a 0.18% decline in exports.

  43. The overall Doing Business (DB) and Logistic Performance Index (LPI) measures are not significantly related to exports. Thus, it is costs and inefficiencies specific to international trade and not inefficiencies in general that influences trade flows.

  44. Heilmann (2016) uses consumer boycotts as a measure of conflict, while this paper relies on more conventional measures of conflict deaths and violence. Unlike Amodio and Di Maio (2018), this analysis focuses on the relationship between conflict and exporting rather than importing. Martin et al. (2008) find that bilateral trade decreases the likelihood of military conflict, while multilateral trade increases the likelihood of conflict.

  45. The first three dummies (\(Indep1-3)\) are omitted because the sample begins in 1984 and Zimbabwe’s independence from the U.K. in 1980 was the last in Africa (see Table A4).

  46. Including all of the explanatory variables from the previous sections does not change the results and is cumbersome to report.

  47. The standard deviation of roads is 1.45, which is then multiplied by the coefficient on roads in column 3 (0.618).

  48. The point estimates on these sectoral variables are similar in columns 2 and 3, but with the exporter*year and importer*year fixed effects the coefficients are significant.

  49. The standard deviation of the natural resource and service sectors is 1.93 and 1.65, which is then multiplied by the natural resource and service coefficients in column 3 (−0.222 and 0.393).

  50. These results include exports*year and importer*year fixed effects.

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    William W. Olney

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Olney, W.W. Intra-African trade. Rev World Econ 158, 25–51 (2022). https://doi.org/10.1007/s10290-021-00421-6

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