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

Shehu Usman Rano Aliyu

MPRA Paper from University Library of Munich, Germany

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.

Keywords: AfCFTA; intra-African trade; macroeconomic performance; Poisson pseudo maximum likelihood (PPML); 2SLS instrumental variable (IV) estimator (search for similar items in EconPapers)
JEL-codes: C26 F13 F42 F43 (search for similar items in EconPapers)
Date: 2024-04-15, Revised 2024-06-22
New Economics Papers: this item is included in nep-int
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Published in Afreximbank Policy Research Working Paper Series APRWPS/2024/09 (2024): pp. 1-36

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