Addressing the Missing Link for Sustainable African Continental Free Trade: Lessons from Ghana’s Manufacturing Industry

Jonathan D. Quartey ()

Asian Development Policy Review, 2021, vol. 9, issue 1, 1-23

Abstract: Expected benefits from the African Continental Free Trade Area (AfCFTA) hang on the production of sufficient real output within the region. Real investment will secure sufficient capital stock to drive sustained economic growth from AfCFTA. This can however be curtailed by high adjustment costs for investment, characteristic of Africa. The study examined how local manufacturing firms could increase their contribution to the African economy. As a starting point, it assessed the investment behavior of domestically incorporated manufacturing companies listed on the Ghana Stock Exchange (GSE), Ghana being the AfCFTA secretariat. Panel data was analyzed to estimate adjustment costs subject to the environmental consequences of manufacturing and trade, for Africa’s capital stock. The study found a positive and highly significant relationship between the value of capital and investment at the 5% significance level. It also found a 77% erosion of initial manufacturing sector capital stock due to environmental damage. The evidence of pollution haven and race to the bottom phenomena were strongly demonstrated. The net benefit of AfCFTA, based on current arrangements was found to be negative. The findings have offsetting effects on both the rate and magnitude of private local investment in Ghana’s manufacturing sector, with consequences for human welfare and AfCFTA. The study recommends a halt of all plans to start AfCFTA trading till a fully functional environmental policy has been put in place, to avert a further deterioration of the African environment and welfare of its people.

Keywords: Adjustment cost; African continental free trade; Environmental damage; Ghana; Race-to-the-bottom; Manufacturing sector; Pollution haven. (search for similar items in EconPapers)
Date: 2021
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