Do Governance Institutions Matter for Trade Flows between Sub-Saharan Africa and its Trading Partners?
Date
2020-06-04
Authors
Adewuyi, Adeolu O.
Olubiyi, Ebenezer
Journal Title
Journal ISSN
Volume Title
Publisher
African Economic Research consortium
Abstract
This study analyses the role of governance institutions in trade involving Sub-Saharan
Africa (SSA) and its trading partners. Specifically, the objectives of this study are to:
investigate the effect of institutions on trade between SSA and its trading partners;
and examine whether governance institutions matter more for trade in SSA resourcepoor countries (or non-mineral products) than for trade in resource-rich countries
(or mineral products). Based on a combination of strands of literature on the subject
matter, we used a modified gravity model to analyse the objectives highlighted
above. Using data spanning 1996 to 2014, empirical analysis involves estimating
variants of gravity equations using the modified Poisson pseudo maximum likelihood
estimation approaches. Empirical results show that not all governance variables
matter for trade between SSA and its partners. Whether it matters or not depends on
countries’ resource endowment, the pattern of trade and the direction of trade. Trade
between SSA and developed countries (especially imports) is driven significantly by
governance institutions, particularly the bureaucratic quality and compliance with
law and order. Such importance of governance institutions could not be established
in trade between SSA and Asia, which are both developing economies. Furthermore,
governance institutions matter more for trade in non-mineral products than for trade
in mineral products. The interaction of tariff with governance variables produced
some results which suggest that inadequate governance institutions reflected in
poor implementation of tariff policy may increase trade costs, thus reinforcing the
negative effect of tariff on trade. Some policy recommendations were articulated to
improve governance institutions in SSA to promote trade with its trading partners.
Description
Keywords
Governance institutions , Trade flows , Sub-Saharan Africa , Regional trading partners , Panel data analysis