Do Exports Affect Urbanisation in Sub-Saharan Africa? Evidence From the Baltic Dry Index and Panel Regressions With Cross-Sectional Dependence

Trade and Circuses: Explaining Urban Giants

Ngoc Thien Anh Pham and Nicholas Sim

Journal of African Economies, 2021, vol. 30, issue 2, 129-159

Abstract: Unlike other developing countries, urbanisation in sub-Saharan Africa appears to be unaccompanied by an improvement in economic fundamentals. This paper provides new evidence that exports may increase urbanisation in sub-Saharan Africa. To address the issue of reverse causality, we instrument exports with information linked to the Baltic Dry Index, which reflects the shipping cost of primary commodities that the sub-Saharan Africa countries mainly export. To handle a large class of confounding variables and cross-sectional dependence, we employ panel regressions with interactive fixed effects. We find that exports have a sizable positive effect on urbanisation. Interestingly, we also find that exports will lose their statistical significance if cross-sectional dependence is overlooked, suggesting that the true effect of an economic fundamental on urbanisation could be obscured by cross-sectional dependence.

Keywords: urbanisation; exports; sub-Saharan Africa; Baltic Dry Index; cross-sectional dependence (search for similar items in EconPapers)
Date: 2021
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