Intra-African Trade and Macroeconomic Performance of Africa: Implications for the African Continental Free Trade Area

Aliyu, Shehu Usman Rano (2024): Intra-African Trade and Macroeconomic Performance of Africa: Implications for the African Continental Free Trade Area. Published in: Afreximbank Policy Research Working Paper Series No. APRWPS/2024/09 (28 June 2024): pp. 1-36.

Abstract

The study investigates the influence of intra-African trade on Africa's macroeconomic performance. To mitigate potential biases, the paper employs a two-step estimation technique (2SLS). In the first step, the paper uses Poisson pseudo maximum likelihood (PPML) to estimate the gravity model for intra-African trade. In the second step, the paper uses the 2SLS instrumental variable (IV) estimator to estimate the macroeconomic models. The paper fills a gap in the literature by considering macroeconomic indicators that were previously overlooked, such as inflation, financial market development, and human capital development. In addition to the commonly considered factor, real GDP per capita, the study also captures recent periods between 1990 and 2022. Findings based on the PPML model show that in addition to the real GDP per capita and regional trade agreements (RTAs), the distance between importing and exporting countries, though counterintuitive, significantly affects intra-African trade, whereas sharing the same colonial history and speaking the same language do not necessarily increase trade in the continent. Further, the 2SLS estimates show that intra-African trade exerts a robust positive impact on Africa's GDP per capita, has a modest effect on financial market development, and dampens inflation over the study period. Accordingly, the paper underscores the need for effective implementation of the African Continental Free Trade Area (AfCFTA protocols) to realise the full potential impact of intra-African trade on income, financial development, and reduced inflation in the continent in the medium to long term.

• Item Type: MPRA Paper
• Language: English
• Keywords: AfCFTA, intra-African trade, macroeconomic performance, Poisson pseudo maximum likelihood (PPML), 2SLS instrumental variable (IV) estimator
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C26 - Instrumental Variables (IV) Estimation; F - International Economics > F1 - Trade > F13 - Trade Policy ; International Trade Organizations; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F42 - International Policy Coordination and Transmission; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies

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