South–South Trade and Economic Growth: Panel Data Evidence from Africa’s Market Integration

Abstract

Policymakers in the South have initiated several regional trading schemes in the last four decades aimed at increasing South-South trade, believing that it will help achieve rapid economic growth and development. Although many analysts have examined the effect of regional trade arrangements on South-South trade, little is known about the impact of South-South trade on economic growth of the member states. This paper uses panel data for the period 1995-2020 to estimate the impact of intra-African trade on economic growth of 42 African countries. Using residual trade openness as instruments and PMG-ARDL-VEC estimation approach, we obtain positive and statistically significant long run relationship between growth of real GDP per capita and the proxy for intraAfrican merchandise trade intensity. We also obtain a positive and significant long run relationship between growth and proxiesfor extra-African merchandise trade openness and total trade openness. Although the results suggest that both regional and multilateral trade expansion can help spur Africa’s growth, the impact of extra-African merchandise trade on growth is, however, relatively higher than that of intra-African merchandise trade. Besides trade, we also find our proxies for physical and human capital accumulation to have significant and positive influences on real GDP per capita growth. JEL: C33, F15, O47, O55