Assessing the Impact of the African Continental Free Trade Area on Intra-African Trade: A Gravity Model Analysis

This study investigates the transformative potential of the African Continental Free Trade Area (AfCFTA) in reshaping intra-African trade dynamics. Employing a gravity model approach, the research elucidates the complex trade relationships intrinsic to the African continent, highlighting the opportunities and growth prospects AfCFTA presents for economic advancement, trade efficiency enhancement and regional integration promotion. To conduct this analysis, panel data were sourced from diverse data sources, including the CEPII Data, the International Monetary Fund, the World Integrated Trade Solution (WITS), the Worldwide Governance Indicators (WGI) and the World Development Indicators. The ordinary least squares (OLS) regression results reveal a notable positive correlation between the AfCFTA and intra-African trade, suggesting a potential increase of 52.3% in intra-African trade attributable to the AfCFTA. The findings further delineate significant disparities in gross domestic product (GDP) among member nations, thereby underscoring the existing economic imbalances within the trade area. The results indicate that for every percentage increase in GDP, intra-African trade has a 50% likelihood of experiencing an uptick. Conversely, a percentage increase in distance yields an average decrease of 8.9% in intra-African trade, all other factors remaining constant (ceteris paribus). The model demonstrates a strong fit, with the independent variables accounting for 89.3% of the variance in the dependent variable. Additionally, the fixed effects analysis corroborates that the AfCFTA exhibits a positive and statistically significant relationship with intra-African trade at the 10% level, although indicating a weaker association quantified at 35.2%. The analysis further reveals that trade increases by $0.485 for every unit dollar increase in GDP. The Poisson pseudo-maximum likelihood (PPML) results affirm the model’s robustness, demonstrating that independent variables elucidate 90.4% of the variance in the dependent variable. Moreover, a percentage increase in the AfCFTA correlates with a 37.5% increase in trade. Instrumental variables techniques were also employed to correct for potential endogeneity, particularly with GDP and distance, confirming the reliability and robustness of the estimated coefficients. The study also emphasizes the alignment of the AfCFTA with the Sustainable Development Goals, particularly concerning poverty alleviation and the enhancement of economic opportunities. However, it is noteworthy that being landlocked negatively impacts trade between nations. Geographically, nations in closer proximity tend to engage in higher volumes of trade, while those situated further apart experience impediments to trade.

Keywords
African continental free trade area, intra-Africa trade, economic growth, gravity model