Trade openness, market integration, and manufacturing activity in Africa: an empirical investigation

A trend of deindustrialization and increased trade openness through bilateral, regional, and multilateral trade arrangements have been a recent phenomenon in several African economies. Developments in trade openness and market integration, on the one hand, and manufacturing activity, on the other hand, beg the question of whether the two phenomena are related. This study seeks to investigate whether intra-regional trade flows influenced manufacturing activity in Africa. Towards that end, an econometric model of manufacturing production is specified, which is estimated using the ARDL method on data drawn from 42 African countries over the period 1995-2020. The estimates suggest that intra-African merchandise trade openness has a positive and statistically significant long run impact on the level of manufacturing output. In contrast, the effect of extra-African trade openness on manufacturing is found to be unfavorable and dominates the positive effect of intra-African trade, causing the impact of the total (i.e. multiregional) trade openness to be negative. Our findings justify the merit of distinguishing between intra- and extra-African trade to characterize the effect of cross-border trade on manufacturing activity and highlight the importance of augmenting the intensity and scope of market integration or intra-African trade in promoting industrialization on the continent.