Poverty and trade liberalization: empirical evidence from 21 African countries

Abstract

The study investigated the possible nexus between trade liberalization and poverty in 21 African countries covering the period 2005-2014. The study deployed the following econometric tests: descriptive statistics; the correlation matrix and variance inflator; the panel unit root test; the pooled OLS technique; and the panel co-integration test (Johansen co-integration test). In order to confirm the robustness and validity of the regression model result, Ramsey RESET, cross dependence, autocorrelation and heteroscedasticity tests were conducted. The findings reveal that foreign direct investment and inflation rate had a positive relationship with the human development index while exchange rates and trade openness were negatively related to poverty level at the 5 percent level. The study recommended urgent policy measures aimed at revamping the poverty alleviation programmes. The study recommended that in a bid to diversify export market, developing countries should target other developing countries in the spirit of South-South cooperation. Such countries should also consider the joining or strengthening of regional economic integration. Incentives for production and human capacity building in the export-oriented sector should be emplaced. Social and economic policies are required to protect any country against the adverse effects of lowered trade barriers.

Trade liberalisation, economic growth and poverty level in sub-Saharan Africa (SSA)

“…In particular, information flows and more liberal trade restrictions robustly relate to lower poverty. The results also corroborate those of Koffi et al (2018), which found that trade reduced poverty level in Indonesia, as well as those of Salimi et al (2014), Keho (2017), Sokang (2018), Ali et al (2018), Gnangnon (2019), and Onakoya et al (2019). Employment rate and population growth rate reduced economic growth in both the short and long runs.…”

“…The author employed the Two Stage Least Square (2SLS) method and showed that trade openness increased economic growth and led to poverty reduction but increased income inequality in the country. Onakoya et al (2019) employed pooled Ordinary Least Square (OLS) to investigate the impact of trade liberalisation on poverty in 21 African countries. The study covered the period between 2005 and 2014 and revealed that trade reduced poverty level in these countries.…”

Does Trade Liberalization Reduce Poverty in Mali? Evidence from ARDL Bounds Testing Approach

“…The long-run result is contrary to expected sign and finding of Giles and Williams (2000), who show that an increase in trade can increase exports, which come with increased incomes and hence higher consumption. However, it is in line with the findings of Magombeyi and Odhiambo (2017), Onakoya et al (2019). The negative relationship could be due to several reasons.…”

“…They found that openness to trade reduces infant mortality rate and increases expectancy for both men and women in the region. Onakoya et al (2019) investigated the link between trade liberalization and poverty in 21 African countries from 2005 to 2014. Using both the pooled OLS technique and the panel cointegration test, they found a negative and significant relationship between trade openness and poverty.…”

The impact of foreign direct investment, foreign aid and trade on poverty reduction: Evidence from Sub-Saharan African countries

“…Le Goff and Singh (2014) study using data for the period 1981 to 2010 showed that the effects of trade on poverty in Africa was not automatic; deep financial markets, high education levels, and strong institutions are required. A more recent study, Onakoya et al (2019), using data for 2005 to 2014, found a negative relationship between trade and poverty, measured as HDI. In other words, trade actually increased the level of poverty in the period studied.…”