Targeting untapped intra-regional trade opportunities for trade integration in Africa

Abstract

Orientation: Although all African governments recognise the importance of stimulating greater intra-regional trade, the process of turning policy into action has proved to be difficult.

Research purpose: Several studies have examined the broad effects of free trade areas in Africa and how the removal of tariffs and other trade barriers impacts member countries. However, no studies appear to have been conducted on the effects of a targeted reduction in trade divisions based on untapped export potential.

Motivation for the study: Many divisions stifle trade on the African continent, from limited market access and poor infrastructure to unwieldy regulatory frameworks and a lack of information on trade opportunities that hinder greater intra-regional trade.

Research approach/design and method: This study sets out to address the research gap by translating the potential trade values of the identified untapped intra-regional trade opportunities between African countries into (Global Trade Analysis Project) GTAP model shocks. This involved determining what the increase in trade efficiency (or reduction in trade divisions) must be, in addition to the removal of all tariffs, to deliver the estimated potential increase in trade for the identified trade opportunities.

Main findings: The study found that in addition to the removal of tariffs, targeted increases in trade efficiency phased in over time produce much higher economic gains than a once-off trade efficiency shock.

Practical/managerial implications: The welfare gains of many of the smaller African economies are higher under this phased approach, and it is not mostly the bigger, more industrialised economies that benefit most.

Contribution/value-add: The results cast new light on the potential of African countries to leverage untapped trade opportunities to increase intra-regional trade among small and large economies alike.