Interrogating major determinants of trade competitiveness for selected Sub-Saharan African Countries

Abstract

Trade in Sub-Saharan Africa has increased and grown significantly despite current account deficits and challenges to maintain global competitiveness. To improve upon and allow more flow of imports and exports within regions, African countries combined to reach a trade agreement, the African Continental Free Trade Area (AfCFTA). The agreement aims to expand trade by loosening trade barriers such as tariffs and ultimately improve trade competitiveness within the Sub-Saharan Countries. To explore major determinants of trade balance, the study analysed investment (GFCF), Real Exchange Rate (RER), tariff (TRWA), and Terms of Trade (TOT) of six selected Sub-Saharan countries for the period 2004 to 2020. The Panel ARDL long run and short run method to investigate the impact on trade balance was used together with Panel Levin, Lin and Chu, IPS, Fisher ADF and PP tests for stationarity, Pedroni, Kao and Johansen-Fisher panel cointegration tests to confirms the availability of long run relationship in the model and Diagnostic tests using data from World bank and Federal Reserve Bank-St Louis. The findings revealed that investment, real exchange rate, and term of trade are significant in the long run and, real exchange rate and term of rate are negatively related to the trade competitiveness while investment is positively related. In the short run, all determinants were found insignificant to trade competitiveness. Accordingly, investment, RER and TOT are essential factors that affect and strengthen trade competitiveness in the long run when implemented effectively. The governments should seek to improve further on infrastructure investment for ease of doing business as this is seen to improve upon the trade balance and drive trade competitiveness. Policies that will lead to an appreciation of real exchange rate will result in term of trade improvement because export will rise, and imports become cheaper than countries become more competitive in the trade industry.