The Impact of Trade Blocs on Poverty Reduction in Africa

Abstract

In recent years, Africa has made many efforts to eradicate poverty, but progress has been unimpressive when compared to other continents. Africa as a continent continues to face a persistent rise in poverty levels despite numerous existing poverty reduction policies. In the quest to stimulate economic growth and development, which will further reduce poverty in the region, numerous trade reforms are implemented through trade openness, including Trade Blocs (TBs). This study offers an empirical assessment of the poverty reduction impact of various African TBs. Also, it assesses the interactive impact of the proximity of countries that trade together on poverty, driven by the need to establish whether there is poverty reductive impact of TBs among countries that trade together and also for countries with closed borders in Africa. A variety of techniques are used in the study, such as Random Effects (RE), Fixed Effects (FE), and Ordinary Least Squares (OLS) to handle endogeneity, it additionally makes use of the Generalised Method of Moments (GMM) estimation methodologies developed by Arellano and Bond in (1991). The data used for the study is a panel data for 53 African countries from 1995 to 2023. Our results prove that TBs have a significantly reductive effect on poverty reduction in most of the Trade Blocs used in the study except for East African Community and Economic Community of West African States, while Trade Blocs between African countries that share borders impacted positively on poverty reduction. The study concludes that while most TBs in Africa benefit member Nations, Africa’s poor and deficient infrastructure tends to militate against the full benefits of regional Trade in Africa; Why our second research question has a positive outcome on poverty reduction. The study recommends and believes that the right Policy reforms, which include investment in infrastructure and improvement in Africa's transportation link, will create a favourable atmosphere for intra-trade within the region, thereby ensuring that the World Bank Sustainable Development Goal for Africa is achieved