Expanding the Benefits of Trade to sub-Saharan African Firms Through Trade Facilitation Initiatives
African Economic Research consortium
Firms across sub-Saharan Africa still suffer from a large variety of on-the-border and behind-the-border trade barriers. This paper empirically investigates how reducing these trade-related costs and constraints through trade facilitation reforms would increase firms’ trade participation and propensity. With data from the World Bank's Enterprise Surveys and a two-stage selection model, the paper suggests that improving customs clearance, government regulations, trade financing and energy and telecommunication infrastructure contributes to significantly increase both trade margins for exporting and importing firms. Furthermore, importers tend to be more responsive than exporters, suggesting an adverse short-term adjustment of the balance of payments. The results also indicate a sizable distributive effect, as larger and smaller firms gain differently depending on the reforms and the trade flows. Additionally, firms in sub-Saharan Africa appears to be more responsive to a changing environment than their counterparts in the rest of the developing world, owing to the greater trade-related constraints, uncertainty and risk that they face; which suggest that firms in the sub-continent are very resilient and not averse to international trade. All of these could add to the ongoing debate over how to better harness the trade potential of sub-Saharan African firms.