Economic Transformation in Africa: The Role of North-South and South-South Trade

Woubet Kassa, Gideon Ndubuisi and Solomon Owusu

No 10896, Policy Research Working Paper Series from The World Bank

Abstract: This paper contributes to the discussion on Africa's pathways to economic transformation by examining the roles of trade patterns—specifically, South-South and North-South trade—focusing on intermediate and capital goods sourced from both the Global North and the Global South. The paper relies on a panel dataset comprising 44 African countries from 2000 to 2022. To address endogeneity concerns, it uses a two-stage least squares method, employing instrumental variables that leverage exogenous changes in trading partner conditions. Findings from the analysis indicate that imported capital and intermediates significantly predict economic transformation in Africa. However, the impact of imports from the Global North and the Global South varies depending on the specific channel of economic transformation. Imports from the Global South are more influential in driving structural change, while those from the Global North are more effective in facilitating productivity convergence. This divergence highlights the distinct roles that North-South and South-South trade play in Africa’s economic transformation agenda. The findings underscore the importance of a nuanced trade policy that leverages the strengths of both regional and global trade partners to advance Africa's economic transformation.

Date: 2024-09-04
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