Analysis Of International Trade Performance In Selected Sub-Saharan African Countries: Impact Of Institutional Framework

ABSTRACT

Sub-Saharan  Africa  (SSA)  with  over  12.3%  of  the  world’s  population contributed as  little  as 1.41% of  world’s total  output in 2008. In terms of international trade, SSA region has performed below expectations. Its total, service and manufactured exports shares in world market on the average were at  low  values  of  0.04%,  0.02%  and  0.01%  between  1995  and  2008, respectively. The values were far lower than the world average as well as what obtains in other developing regions such as Latin America and the Caribbean and Middle East and North Africa. On the other hand, SSA countries had low values on most measures of institutional quality, which were also lower than both the world average and other regions. For instance, the region’s value for rule of law and regulatory quality in 2008 were -0.74 and -0.70 compared to the world average of -0.03 and -0.01, respectively. 

The background information motivated this study with the main objective of investigating  the  impact  of  institutional  framework  on  international  trade performance  of  SSA  countries.  This  objective  was  achieved  using  both descriptive  and  econometric  analyses.  The  econometric  analysis  involved Fixed  Effects  model  in  a  panel  data  format  and  Two-Stage  Least  Squares technique  for  the  period  1996-2008  using  34  selected  SSA  countries.  This approach was deemed appropriate given the fact that institutional variables had limited variation. Another reason was the imperativeness of employing some instrumental  variables  such  as  legal  formation  and  settlers’  mortality  that influence  institutional  variables  but  are  orthogonal  to  the  indicators  of international trade performance. The empirical  models were formulated and estimated in the light of different categories of institutional framework and their impact on the indicators of international trade performance. The impacts of other factors such as human capital and infrastructures on international trade performance were equally assessed. 

The empirical analyses were carried out by unbundling institutional framework into three main pillars – political, economic and financial institutions as well as unbundling international trade performance by focusing on export performance of  five  major  sectors,  namely:  total,  manufacturing,  agricultural,  fuel  and mining, and service exports. Thus, the ‘unbundled’ institutions were related to ‘unbundled’ international trade performance.

The  study  found  that  political  institutional  variables  had  positive  and significant impact on the indicators of international trade performance with different levels of impact on the indicators of international trade performance. On economic institutions, it was found that the regional economic communities in  Southern  Africa,  notably  SADC  was  more  relevant  in  promoting international trade performance especially manufacturing export compared to others. While, the indicators of financial institutions had significant impact on international trade performance especially service and manufacturing exports. It was also established that service export was more stable than other indicators of international trade performance while fuel and mining export exhibited the greatest  instability.  The  study  equally  found  that  real  exchange  rate depreciation and trade policy did not significantly promote international trade performance  in  SSA  countries.  On  the  other  hand,  it  was  established  that human  capital  had  positive  and  significant  impact  on  the  indicators  of international trade. 

Several recommendations were made in the study. Some of them include the need to place more emphasis on service export to mitigate the adverse effects of  external  shocks.  Also,  there  is  need  for  policy  measures  that  will  ease.