Trade facilitation and concentration: evidence from Sub-Saharan Africa
This paper asks whether trade facilitation can contribute to the reduction of the spatial agglomeration of economic activity in sub-Saharan Africa (SSA). It is often perceived that the opposite is true: i.e. that inequality between regions is bound to widen when a country is opening up to trade, as indicated by deteriorating living conditions in African cities despite their higher-than-average incomes. However, if the Krugman–Livas hypothesis holds for Africa, trade openness can contribute to alleviating Africa’s urban problem by leaving governments and donors more time to build the sanitary and transportation infrastructure that urban growth requires.
To explore this hypothesis in the SSA context, this paper adopts the approach of proxying the location of economic activity through the measurement of night-light emissions as captured by satellites, and proxying the reduction of trade barriers by improvements in Logistics Performance Index scores.
The results suggest that activity seems to have agglomerated away from borders in sub-Saharan Africa, but that this agglomeration effect was dampened by trade facilitation. Agglomeration is identified through an ‘iron-curtain’ effect whereby night-light emissions decrease along major cross-border highways as one gets closer to a border. This effect is strongly present and has reinforced itself over time. However, it is significantly dampened by trade facilitation, an effect that seems robust to the inclusion of powerful arrays of fixed effects and a variety of estimation approaches.
These results are important for policy-makers and development partners, as they suggest that, beyond their well understood effects on trade and growth, trade-facilitation projects can also have desirable effects on the location of economic activity, making growth more balanced spatially. The development of activity in peripheral areas is a highly desirable alternative to sprawling urban centres with severely deficient sanitary and transport infrastructures; moreover, it can contribute to more inclusive growth and to the local consolidation of peace processes.
Cadot, O.; Himbert, A.; Jouanjean, M-A. Trade facilitation and concentration: evidence from Sub-Saharan Africa. ODI, London, UK (2015) 25 pp.