Trade openness and Economic Growth in Africa: Goods or Services?

This study examines the impact of trade openness in goods and services on economic growth across Africa, utilizing panel data for all 54 countries from 1980 to 2022. The analysis, conducted at both continental and regional economic community levels, finds that trade openness generally exerts a positive effect on economic performance. However, a significant regional heterogeneity emerges. Notably, a decoupling is observed between goods trade expansion and strong GDP growth in Central and East Africa, a weaker relationship in Northern and Southern Africa, and a similarly decoupled pattern for services trade and GDP growth in most regions, except for a positive correlation in North Africa. Furthermore, the results indicate a substitution effect between goods and services trade, with goods trade contributing more substantially to GDP growth. While services trade's contribution is stable, goods trade contribution varies significantly, influenced by multilateral and regional liberalization processes. A key regional divergence is confirmed: goods and services trade act as substitutes in Central Africa but as complements in North Africa. The policy implications emphasize prioritizing services trade facilitation. Aligning with the African Continental Free Trade Area (AfCFTA) Protocol on Trade in Services, this entails reducing barriers, undertaking structural reforms, and investing in critical infrastructure to improve service delivery conditions and attract investment, thereby expanding Africa's total services trade.