The Effect of Trade Liberalization on Exports, Imports and Balance of Payment: The Case of Sub-Saharan Africa

Adedapo Odebode, Osman Nuri Aras
DOI Number:
We explore dynamic non-stationarity panel data estimators namely, mean group (MG) and pooled mean group (PMG) for investigating the extent to which trade policies such as trade liberalisation and tariff rates matter to trade performance using the case of Sub-Saharan Africa (SSA). We found that increasing tariffs has the potential of particularly worsening export growth in SSA but increasing openness via liberalisation policy is likely to spur decline in the import dependence of the SSA economy. Thus, we concluded that while trade liberalisation seems to exhibit no significant impact on export growth in SSA, the same policy may yet be explored to encourage decline in the region’s import activities, particularly those import activities that might threaten the growth of domestic industries.
Trade liberalization, Export growth, Import growth, Balance of Payment, Tariffs rate, Mean group, Pooled mean group, Sub-Saharan Africa.
Full Text: 
File download

Ackah, C., & Morrissey, O. (2005). Trade policy and performance in sub-Saharan Africa since the 1980s. CREDIT Research Paper, No.05/13, The University of Nottingham, Centre for Research in Economic Development and International Trade (CREDIT), Nottingham.
Allaro, H. B. (2012). The impact of trade liberalization on the Ethiopia's trade balance. American Journal of Economics, 2(5), 75-81.
Arthukorala, P. (2011). Trade liberalization and the poverty of nations: A review article. The Journal of Development Studies, 47, 533-543.
Babatunde, M. A. (2009). Can trade liberalization stimulate export performance in Sub-Saharan Africa. Journal of International and Global Economic Studies, 2(1), 68-92.
Bas, M. (2012). Input-trade liberalization and firm export decisions: Evidence from Argentina. Journal of Development Economics, 97(2), 481-493.
Bertola, G., & Faini, R. (1991). Import demand and non-tariff barriers: the impact of trade liberalization. Journal of Development Economics, 34(1-2), 269-86.
Boylan, T. A., & Cuddy, M. P. (1987). Elasticities of import demand and economic development: The Irish experience. Journal of Development Economics, 26(2), 301-309.
Breitung, J. (2001). The local power of some unit root tests for panel data. In B. H. Baltagi, T. B. Fomby & R. Carter Hill (Eds.), Nonstationary panels, panel cointegration and dynamic panels (pp. 161-177). Emerald Group Publishing Limited, Bingley, 161-177.
Chaudhary, M. A., & Amin, B. (2012). Impact of trade openness on exports growth, imports growth and trade balance of Pakistan. Forman Journal of Economic Studies, 8(1), 63-81.
Faini, R., Pritchett, L. and Clavijo, F. (1992). Import demand in developing countries, In M.G. Dagenais & P.A. Muet (Eds.), International Trade Modelling (pp. 279-297), London: Chapman and Hall.
Fan, H., Lai, E. L. C., & Qi, H. S. (2019). Trade liberalization and Firms’ export performance in China: Theory and evidence. Journal of Comparative Economics, 47(3), 640-668.
Fernandes, A. (2007). Trade policy, trade volumes and plant-level productivity in Colombian manufacturing industries. Journal of International Economics, 71(1), 52-71.
Hadri, K. (2003). Testing for stationarity in heterogeneous panel data. The Economic Journal, 3(2), 148-61.
Harris, R. D., & Tzavalis, E. (1999). Inference for unit roots in dynamic panels where the time dimension is fixed. Journal of econometrics, 91(2), 201-226.
Hoque, M. M., & Yusop, Z. (2010). Impacts of trade liberalisation on aggregate import in Bangladesh: An ARDL Bounds test approach. Journal of Asian Economics, 21(1), 37-52.
Pasaran, M. H., Im, K. S., & Shin, Y. (1995). Testing for unit roots in heterogeneous panels. Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
Kaur, H. and Makkar, S. (2016). Impact of trade liberalization on balance of payments in India. EPRA International Journal of Economic and Business Review, 4(9), 121-126.
Khan, M. S., & Zahler, R. (1985). Trade and financial liberalization given external shocks and inconsistent domestic policies. Staff Papers, 32(1), 22-55.
Khan, M., Zahler, R. Trade and Financial Liberalization Given External Shocks and Inconsistent Domestic Policies. IMF Econ Rev 32, 22–55 (1985).
Levin, A., Lin, C. F., & Chu, C. S. J. (2002). Unit root tests in panel data: asymptotic and finite-sample properties. Journal of Econometrics, 108(1), 1-24.
Loayza, N. and Ranciere, R. (2002). Financial development, financial fragility and growth. CESifo Working Paper, No. 684(5), CESifo Working Paper, No. 684, Center for Economic Studies and ifo Institute (CESifo), Munich.
Maddala, G. S., & Wu, S. (1999). A comparative study of unit root tests with panel data and a new simple test. Oxford Bulletin of Economics and statistics, 61(S1), 631-652.
Mah, J. S. (1999). Import demand, liberalization, and economic development. Journal of Policy Modeling, 21(4), 497-503.
Melo, O., & Vogt, M. G. (1984). Determinants of the demand for imports of Venezuela. Journal of Development Economics, 14(3), 351-358.
Odongo, T. (2015). Trade Policy as Well as Non Trade Policy Reforms and Export Performance of Agricultural Commodities: An Empirical View of Developing Countries. International Journal of Economic Behavior and Organization, 3(4), 65-68.
Osakwe, P. N., Santos-Paulino, A. U., & Dogan, B. (2018). Trade dependence, liberalization, and exports diversification in developing countries. Journal of African Trade, 5(1-2), 19-34.
Pacheco-López, P. (2005). The effect of trade liberalization on exports, imports, the balance of trade, and growth: the case of Mexico. Journal of Post Keynesian Economics, 27(4), 595-619.
Parikh, A. (2006). Relationship between trade liberalization, growth, and balance of payments in developing countries: An econometric study. The International Trade Journal, 20(4), 429-467.
Paudel, R. C. (2014). Export performance in developing countries: A comparative perspective. Working Papers in Trade and Development, Working Paper No. 2014/26, Arndt-Corden Department of Economics, Crawford School of Economics, and Government, AUN College of Asia and the Pacific, Australian National Uiversity.
Pesaran, M. H., & Smith, R. (1995). Estimating long-run relationships from dynamic heterogeneous panels. Journal of econometrics, 68(1), 79-113.
Pesaran, M. H., Shin, Y. & Smith, J. R. (1997). Testing for the existence of a long-run relationship. DAE Working Papers 9622, Department of Applied Economics, University of Cambridge.
Ratnaike, Y. C. (2012). Is there an empirical link between trade liberalisation and export performance?. Economics Letters, 117(1), 375-378.
Santos‐Paulino, A. U., & Thirlwall, A. P. (2004). The impact of trade liberalisation on exports, imports and the balance of payments of developing countries. The Economic Journal, 114(493), 50-72.
Santos‐Paulino, A. U. (2007). Aid and trade sustainability under liberalisation in least developed countries. World Economy, 30(6), 972-998.
Santos-Paulino, A. U. (2002). Trade liberalisation and export performance in selected developing countries. Journal of Development Studies, 39(1), 140-164.
Sofjan, M. (2017). The effect of liberalization on export-import in Indonesia. International Journal of Economics and Financial Issues, 7(2), 672-676.
Stojčić, N., Vojinić, P. & Aralica, Z. (2018). Trade liberalization and export transformation in new EU member states. Structural Change and Economic Dynamics, 47, 114-126.
Thirlwall, A.P. & Gibson, G. (1992). Balance of Payments Theory and the United Kingdom Experience, London: Macmillan.
Weiss, J. (1992). Export response to trade reform: recent Mexican experience. Development Policy Review, 10(1), 43-60.

Content Status: