What Can Be Expected from African Regional Trade Arrangements?: Some Empirical Evidence
151 Pages Posted: 20 Apr 2016
Date Written: November 1998
Sub-Saharan Africa must adopt appropriate trade and structural adjustment policies to become more competitive internationally and to capitalize on opportunities in foreign markets. The exchange of regional preferences alone cannot reverse Africa's unfavorable export trends. A far more promising policy approach would be broad-based reductions in African trade barriers, on a most-favored-nation basis.
For over three decades, Sub-Saharan African countries have had an interest in regional integration initiatives to accelerate their industrialization and growth.
With the help of a more comprehensive database on intra-African trade than was previously available, Yeats examines a proposal to exchange trade preferences among Sub-Saharan African countries. The data suggest that problems with African regional trade arrangements are more daunting than is generally recognized.
Africa's non-oil exports are concentrated in a few products, none of them important regional imports. There is relatively little intra-African trade and the noncomplementarity problem in African trade cannot be resolved quickly. Moreover, intra-African trade is highly concentrated, geographically, with almost no trade between East and West Africa.
This finding makes less compelling the arguments that regional trade can help overcome problems of small domestic markets.
The range of processed products African countries export competitively is extremely narrow and many have a comparative advantage in the same items. Excluding refined petroleum, one or more African countries have a comparative advantage in products that account for about 5 percent of regional imports.
In short, regional trade agreements seem to present Africa with a lose-lose situation.
If Africa does not develop export capacity in key machinery and transport equipment, the region will continue to depend heavily on third countries for those exports. Dependence on non-African suppliers would seemingly reduce the likelihood of regional arrangements succeeding. However, machinery and transport equipment are normally manufactured using capital-intensive production techniques and Africa has no comparative advantage in those goods. If Africa tries to develop an export capacity in this sector, the goods will be relatively high in cost and probably less reliable than similar products from efficient suppliers. Attempts to use such equipment would undercut the competitive position of Sub-Saharan African exporters in global markets.
Trade reform on a most-favored-nation basis is a more promising option. Evidence shows a strong positive association between lower trade barriers and economic growth.
This paper - a product of Trade, Development Research Group - is part of a larger effort in the group to accelerate the trade and growth of developing countries. The author may be contacted at email@example.com.
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