Trade Regimes, Liberalization and Macroeconomic Instability in Africa

Chantal Dupasquier and Patrick Osakwe
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Chantal Dupasquier: UN Economic Commission for Africa

Development Economics Working Papers from East Asian Bureau of Economic Research

Abstract: Trade policy has been a very contentious issue in the discourse on African development. Using panel data for 33 African countries spanning the period 1986-2000, we examine the relationship between trade liberalization and macroeconomic instability in Africa. We focus on instabilities in output, consumption and investment, and use both single and system estimation techniques as well as different measures of trade regimes. After controlling for key potential sources of macroeconomic instability, we find no substantial evidence that trade liberalization has a systematic impact on instability in the region. The study shows that the volatilities of inflation and the terms of trade, as well as climatic disasters, the nature of fiscal policy, and the severity of debt are more robust determinants of macroeconomic instability in the region. The paper also argues that policymakers in the region can reduce macroeconomic instability and vulnerability to shocks by diversifying their export structures, using fiscal policy in a countercyclical manner, and improving the functioning of the financial sector.

Keywords: instability; openness; trade regime; Africa; Macroeconomic; panel data (search for similar items in EconPapers)
JEL-codes: F13 O24 O55 (search for similar items in EconPapers)
Date: 2006-01
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Citations: View citations in EconPapers (3)

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