The Potential Effects of The African Continental Free Trade Area on Intra-African Trade: Gravity Model Approach

The study delves into the transformative potential impact of the African Continental Free Trade Area (AfCFTA) on intra-African trade dynamics. Using the gravity model approach, the study explores the intricate web of trade relationships within the African continent, shedding light on the potential and opportunities that the AfCFTA presents for fostering economic growth, enhancing trade efficiency and promoting regional integration. Panel data from various sources, including the CEPII Data, International Monetary Fund,World Integrated Trade solution (WITS), Worldwide Governance Indicators (WGI) and World Development Indicators were used. The Ordinary Least Squares (OLS) results indicate a positive correlation between the AfCFTA and intra-African trade, suggesting that the AfCFTA has the potential to increase intra-Africa trade by 52.3%. Again, the results reveal significant disparities in gross domestic product amongst the AfCFTA member nations, underscoring the economic imbalance within the trade area. IntraAfrica trade has a 50% possibility to increase for every percentage increase in gross domestic product. For every percentage increase in distance, intra-African trade decreases by 8.9% on average and ceteris paribus. The model is fit showing that the explanatory variables explain the dependent variable to the tune of 89.3%. In addition, the fixed effects results show that the AfCFTA is positive and is statistically significant at 10%, indicating a weak relationship with intra-African trade by 35.2%. Again, trade increases by the United States of America (USD) 0.485 for every unit dollar increase in gross domestic product (GDP). Moreover, the Poisson Pseudo Maximum Likelihood (PPML) results show that the model is fit, showing that the independent variables explain the dependent variable to the tune of 90.4%. Also, a percentage increase in the AfCFTA increases trade by 37.5%. The study also highlights the alignment of the AfCFTA with the Sustainable Development Goals, particularly in terms of poverty eradication and economic opportunities. However, being landlocked is found to decrease trade between countries. Geographically, closer nations typically engage in more trade whereas farther away nations impede trade.