The Impact of Trade Liberalisation on Export Growth and Import

Growth in Sub-Saharan Africa.

Lanre Kassim

Presentation Outline

• Background information

• Motivation

• Objectives

• literature review

• Methodology

• Data and Data sources

• Descriptive tables

• Results

• Conclusions

Background Information

Protectionism of the 1960s and 1970s

The debt crisis and global recession

Trade liberalisation in the context of

Structural adjustment Programs

Motivation

• Most studies on trade liberalization adopt the narrow approach

of analysing its impact on GDP growth without considering

whether growth is sustainable and consistent with long-run

balance of payments equilibrium.

• Very few studies on the trade liberalisation in Sub-Saharan

Africa.

• Relevance of results to current trade negotiations such as the

Tripartite Free Trade Area and the Economic Partnership

Agreements.

Objectives

• To examine the impact of trade liberalization on export growth

• To examine the impact of trade liberalization on import growth

• To investigate whether trade liberalization has increased or

decreased the price elasticity of demand for exports and

imports, respectively.

• To examine the timing impact of trade reforms

Literature review

• UNCTAD (2008): Trade liberalization increased the ratio of

exports-to-GDP by 0.09 percentage points.

• Babatunde (2009): No significant relationship between trade

liberalization and export growth.

• Olofin & Babatunde (2007): The long run income elasticity of

demand for SSA exports ranges from 0.94 to 1.33 while the

estimated long run price elasticity of demand varies from -

0.01 to -0.17

• Santos-Paulino & Thirlwall (2004) on developing countries

• Santos-Paulino (2007) on least developed countries

Methodology 1

• The conventional export demand equation which relates the

growth of exports to world income growth and a measure of

relative prices was adopted

• We include two measures of liberalization: (a) export duties (b)

liberalization dummy

• Two interaction terms to investigate the impact of trade

liberalization on price and income elasticity of demand for

exports

• We specify static and dynamic panel models:

(a)

(b)

itititititititiit wlibrtotlibepdlibdumwgdpgrtotepg 654321

ititititititititiit wlibrtotlibepdlibdumwgdpgrtotepgepg 76543211

Methodology 2

• The growth of imports is expressed as a function of domestic

real income growth and a measure of relative prices.

• Two measures of liberalization: (a) import duties (b)

liberalization dummy

• Two interaction terms to investigate the impact of trade

liberalization on price and income elasticity of demand for

imports

(a)

(b)

Estimators: Fixed and random effects

Generalized methods of moments

itititititititiit ylibrtotlibimpdlibdumgdpgrtotimpg 654321

ititititititititiit ylibrtotlibimpdlibdumgdpgrtotimpgimpg 76543211

Data and Data sources

• Sample size: 28 Sub-Saharan African countries.

• Time period: 1981 to 2010

Sources:

• World Bank Development indicators 2011

• IMF Government Financial Statistics 2011

Descriptive tablesYear: 1981 to 2010 Average export growth Average import growth

Country (28) Lib Year Before Lib (%) After Lib (%) Increase or Decrease Before Lib (%) After Lib (%) Increase or Decrease

Benin 1988 -1.13 2.06 Increase -6.24 3.53 Increase

Botswana 1994 8.84 2.85 Decrease 5.65 5.63 Same

Burkina Faso 1991 2.64 6.98 Increase 0.96 3.12 Increase

Burundi 2003 5.30 21.56 Increase 1.09 37.14 Increase

Cameroun 1989 7.89 1.55 Decrease 8.88 3.79 Decrease

Cote d’Ivoire 1994 1.01 4.33 Increase -2.19 6.24 Increase

DRC 2001 4.66 6.24 Increase 6.53 15.37 Increase

Ethiopia 1992 0.67 10.02 Increase 3.99 10.70 Increase

Gabon 1994 5.14 -1.39 Decrease 2.35 1.66 Decrease

Gambia 1986 8.24 2.08 Decrease -11.13 2.61 Increase

Ghana 1983 -46.70 10.43 Increase -4.5 11.78 Increase

Kenya 1993 4.07 4.35 Increase 0.06 8.85 Increase

Lesotho 1994 6.30 9.67 Increase 4.26 7.37 Increase

Madagascar 1988 -5.44 6.30 Increase -9.91 7.34 Increase

Malawi 1988 1.55 3.69 Increase -5.57 3.67 Increase

Mali 1988 4.33 8.97 Increase 6.38 4.77 Decrease

Mauritius 1985 2.51 5.64 Increase -1.48 6.13 Increase

Namibia 1994 2.82 0.57 Decrease 1.21 4.28 Increase

Nigeria 1986 -6.72 3.45 Increase -3.02 4.72 Increase

Descriptive tables

Year: 1981 to 2010 Average export growth Average import growth

Country (28) Lib Year Before Lib (%) After Lib (%) Increase or Decrease Before Lib (%) After Lib (%) Increase or Decrease

Rwanda 1995 -4.77 20.36 Increase 10.27 1.98 Decrease

Senegal 1986 7.68 3.37 Decrease 6.84 3.70 Decrease

Sierra Leone 1989 -4.1 -0.56 Increase -8.04 2.90 Increase

South Africa 1994 2.20 3.90 Increase 1.38 6.05 Increase

Swaziland 1994 4.25 6.23 Increase 3.20 5.05 Increase

Togo 1994 -2.58 3.01 Increase -2.57 6.04 Increase

Uganda 1987 0.63 14.12 Increase 0.94 9.52 Increase

Zambia 1991 -3.39 14.99 Increase -4.14 15.47 Increase

Zimbabwe 1990 5.31 -1.76 Decrease 6.23 1.27 Decrease

Export result 1Independent variables Random Effects (I) Random Effects (II)

rtot -0.24

(4.44)*

-0.13

(1.80)***

wgdpg 1.12

(2.40)**

0.99

(1.38)

libdum 3.32

(2.33)**

2.81

(0.87)

epd -0.02

(0.05)

-0.02

(0.03)

rtotlib -0.26

(2.41)**

wlib 0.21

(0.22)

Diagnostic statistics

R2 0.069 0.083

F-stat [p-value] [0.0000] [0.0000]

Joint Sig - [0.0532]

No. of Observations 399 399

Hausman [p-value] [0.4099] [0.6741]

Export results 2GMM (I) GMM (II)

l.epg 0.17

(1.13)

0.15

(0.89)

rtot -0.28

(3.22)*

-0.15

(3.22)*

wgdpg 1.43

(3.25)*

1.55

(1.69)***

libdum 2.67

(1.95)***

3.65

(1.01)

epd -0.12

(0.18)

-0.03

(0.04)

rtotlib -0.25

(2.08)**

wlib -0.25

(0.23)

LR income elasticity 1.72 1.82

LR price elasticity 0.34 0.18

LR lib effect 3.22 4.29

Diagnostic Statistics

Joint Sig (rerlib & wlib) [0.1065]

Wald test [0.000] [0.000]

1st-Order serial correlation [0.015] [0.032]

2nd-Order serial correlation [0.133] [0.172]

Sargan Test [0.477] [0.539]

Export results 3Random Effects (I) Random Effects (II) GMM (I) GMM (II)

l.epg - - 0.21

(1.38)

0.20

(1.39)

libdum - 3.55

(2.45)**

- 2.77

(1.83)***

libdum2 -3.50

(0.89)

-5.21

(1.32)

-2.59

(0.68)

-3.86

(0.93)

libdum3 3.24

(0.80)

1.58

(0.38)

3.36

(0.73)

2.14

(0.45)

rtot -0.24

(4.42)*

-0.25

(4.48)*

-0.28

(3.37)*

-0.28

(3.42)*

wgdpg 0.97

(2.08)**

1.14

(2.45)**

1.37

(3.28)*

1.45

(3.35)*

epd 0.04

(0.08)

-0.03

(0.07)

0.04

(0.06)

-0.11

(0.17)

Diagnostic Statistics

Wald test / F-stat [p-value] 0.000 0.000 0.000 0.000

1st-Order serial correlation - - 0.015 0.015

2nd-Order serial

correlation

- - 0.133 0.129

Sargan Test - - 0.477 0.495

Import result 1

Independent variables Fixed Effects (I) Fixed Effects (II)

rtot 0.30

(5.99)*

0.22

(3.31)*

gdpg 1.20

(7.96)*

1.15

(5.99)*

libdum 4.87

(3.96)*

3.96

(2.18)**

impd -0.66

(3.00)*

-0.66

(2.26)*

rtotlib 0.20

(1.96)**

ylib 0.20

(0.62)

Diagnostic statistics

R2 0.2765 0.2853

F-stat [p-value] [0.0000] [0.0000]

Joint Sig [0.1288]

No. of Observations 363 363

Hausman [p-value] [0.0007] [0.0031]

Import Results 2GMM (I) GMM (II)

l.impg 0.12

(1.78)***

0.13

(2.09)**

rtot 0.30

(4.45)*

0.21

(2.17)**

gdpg 1.05

(4.02)*

0.93

(2.52)**

libdum 4.33

(3.25)*

2.86

(1.23)

impd -0.56

(2.12)**

-0.57

(2.20)**

rerlib 0.20

(2.00)**

ylib 0.35

(0.63)

LR income elasticity 1.19 1.07

LR price elasticity 0.34 0.24

LR lib effect 4.92 3.29

Joint Sig (rerlib & wlib) [0.1339]

Wald test [0.000] [0.000]

1st-Order serial correlation [0.004] [0.003]

2nd-Order serial correlation [0.224] [0.201]

Sargan Test [0.490] [0.484]

Import Results 3Fixed Effects (I) Fixed Effects (II) GMM (I) GMM (II)

l.impg - - 0.12

(1.59)

0.12

(1.78)***

libdum - 4.90

(3.26)*

- 4.23

(2.70)*

libdum2 -1.84

(0.51)

-4.40

(1.20)

-1.27

(0.68)

-3.37

(0.93)

libdum3 6.90

(1.84)***

4.42

(1.17)

7.17

(2.73)*

5.14

(1.84)***

rtot 0.30

(5.98)*

0.30

(5.94)*

0.30

(3.37)*

0.30

(4.26)*

gdpg 1.26

(8.32)*

1.19

(7.84)*

1.12

(4.11)*

1.04

(3.85)*

impd -0.72

(3.23)*

-0.68

(3.07)*

-0.62

(2.52)**

-0.57

(2.26)**

Diagnostic Statistics

Wald test / F-stat [p-value] 0.000 0.000 0.000 0.000

1st-Order serial correlation - - 0.005 0.005

2nd-Order serial

correlation

- - 0.157 0.173

Sargan Test - - 0.605 0.482

Comparing resultsCurrent Study Santos-Paulino &

Thirllwall (2004)

Santos-Paulino (2007)

Liberalisation dummy Exports 2.67* 1.91* 0.50*

Imports 4.33* 9.10* 1.06*

Duties Exports -0.12 -0.16* -0.19*

Imports -0.56* -0.43* -0.17*

Price elasticity Exports -0.28* -0.14* -0.03*

Imports 0.30* 0.16* 0.11*

Income elasticity Exports 1.43* 1.42* 1.72*

Imports 1.05* 2.60* 1.68*

Liberalisation on price

elasticity

Exports -0.25* -0.07 -0.02*

Imports 0.20* -0.40* -0.08

Liberalisation on income

elasticity

Exports -0.25 1.41* 0.15*

Imports 0.35 0.93* 0.22*

Conclusions and Policy implications

• Trade liberalisation has significantly raised the growth of

exports in Sub-Saharan Africa; however, import growth has

risen faster by approximately two percentage points which

gives a prima facie evidence that the trade balance has

deteriorated in the region.

• We find evidence that trade liberalisation increases the price

elasticity of demand for exports and imports but does not have

a significant impact on income elasticity.

• The timing investigation of trade reforms shows that the short

run impact of trade liberalisation on import growth is

instantaneous while for export growth, it is much slower.

• The need for improvement in level of infrastructure.

• Setting up export promotion incentives as further trade reforms

take place.