Trade Integration, Growth and Employment in West Africa: Implications for African Continental Free Trade Area (Afcfta)

Abstract

This study investigated the effects of trade integration on economic growth and employment in West Africa from 2005 to 2019. Using a two-step panel GMM estimation technique, results showed that trade between West Africa member states and other SSA countries has more reinforcing growth propelling effect. That is, trade deepening between West African countries and other SSA countries has the tendency to boost growth more than when trade is just among the West African countries. Results also showed that although trade integration has not led to expansion in employment in the West African region, increased volume of trade among countries would foster more employment generation. The policy import of the study is threefold. First, when West Africa countries trade among themselves, the benefits of trade in enhancing economic growth and employment generation is small. Second, with trade between West Africa and other countries and regions in SSA, West Africa stands better chance of harnessing more growth and employment benefits from trade integration. Third, there is therefore the need for West Africa to key into the AfCFTA implementation as deeper trade within Africa has great potentials of fast-tracking growth and more employment generation for the region.

The geostrategy of the African Continental Free Trade Agreement (AFCFTA) and third parties: a focus on China

“…Furthermore the Agreement paves the way for opportunities for a rapidly growing middle class, and a young population that allows for more innovation and technological advancements [11,34]. Importantly the AfCFTA will allow for Africa to produce more finished products as opposed to only exporting natural resources [35], and Africa's considerations for the digital economy and how Africa regulates the digital economy and technology [36].…”

“…It is critical to establish a framework that will serve as the foundation for future discussions between AfCFTA partner states and third parties. The AfCFTA is primarily a project to promote intra-African trade and also seeks to further the African Union's Agenda 2063 aspirations [35]. Hence the full implementation of the AfCFTA will have implications for the African economy at large.…”

Impacts of Regional Integration and Market Liberalization on Bilateral Trade Balances of Selected East African Countries: Potential Implications of the African Continental Free Trade Area

“…According to Kouty (2021), the low intra-Africa trade ratio is attributed to trade procedures such as the number of documents required to import goods and border compliance. Furthermore, the level of economic growth and employment in the region is still low despite the trade integration efforts (Adeboje et al 2022). The intra-REC trade is barely above 10 percent, with only 8 percent of export terminals of EAC countries in Africa, yet over 80 percent of the continent's imports originate from the USA, Asia, and Europe (Shinyekwa et al 2021).…”

On the Macroeconomic Conditions of West African Economies to External Uncertainty Shocks

“…One of the primary goals of the monetary zone's creation was to foster exchange rate and inflation stability among member nations in order to encourage output development, trade, and capital flows, since their excessive fluctuations are detrimental to economic stability. The need for monetary integration has become critical in resolving the problems of currency multiplicity and exchange rate volatility partly due to lower outputs and higher inflation (Alagidede et al 2008) that often inhibit trade flows among African countries (Owusu Junior et al 2017;Ekpo 2020;Adeboje et al 2022).…”

“…A recent study by Gammadigbe and Dioum (2022) finds that in support of the theory of the endogeneity of optimum currency area, the intensity of trade is relevant for the convergence of ECOWAS countries' business cycles. However, Adeboje et al (2022) advocate that trade integration has not led to expansion in employment in the West African region. This may be due to heterogeneity in West Africa's macroeconomic fundamentals toward their trading patterns across time and frequencies.…”