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3. Trade Openness and Macroeconomic Performance

Author(s):
Céline Allard, Jorge Canales Kriljenko, Jesus Gonzalez-Garcia, Emmanouil Kitsios, Juan Trevino, and Wenjie Chen
Published Date:
March 2016
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The recent period of rapid growth and generally better macroeconomic performance has coincided with expanding trade flows. Sub-Saharan Africa’s real GDP per capita growth substantially accelerated toward the end of the 1990s, to average 4.3 percent per year over the 2000s, compared with 2.9 percent a decade earlier. Increased political stability, better macroeconomic management, and access to financing as well as an improved business climate supported investment efforts, which in turn improved the productive capacity in the region. But increased trade integration also played a role, not only via higher demand for exported goods, but also by fostering competition and enabling some transfer of technology and efficiency gains from imported intermediary goods. Indeed, average trade openness—measured here as the sum of exports and imports in percent of GDP—increased from 41 percent of GDP in the 1990s to 45 percent in the 2000s, with a clear positive trend in the past three decades and an acceleration in the 2000s (Figure 8).

Figure 8.Trade Openness to GDP, 1983–20111

Source: Penn World Tables v. 8.0 ; and IMF staff calculations.

1 Measured as the sum of real exports and imports in percent of real GDP.

To disentangle the respective role of these factors, an econometric analysis is conducted, following previous studies on growth determinants, relating per capita real GDP growth in sub-Saharan countries over 1980–2010 to the initial level of development (as lower starting points tend to be associated with higher growth rates, as these countries catch up), investment and consumption ratios (as they affect physical capital and available domestic savings to support long-term growth), trade openness, and changes in terms of trade (Moral-Benito 2012; Dollar and Kraay 2003; see Appendix 3.1 for a description of the model). 3 The analysis finds that increased trade has had a significant and positive influence on growth in sub-Saharan Africa. More specifically, both the increase in trade openness and the improvement in terms of trade have contributed to the acceleration of real per capita GDP growth. Of the 1.4 percentage point increase in the annual rate of growth of real per capita GDP between the 1990 and 2000 decades, the increase in trade openness is estimated to have contributed 0.6 percentage points and improved terms of trade another 0.2 percentage points (Figure 9). Together, these increases account for about half of the increase in average growth of per capita GDP in the region. However, it is important to remember that increased trade integration also makes the region more vulnerable to external shocks, as the current situation among sub-Saharan African commodity exporters exemplifies.

Figure 9.Annual Per Capita Real GDP Growth (Percent)

Source: IMF staff estimations.

While global integration is found to have supported overall growth, labor productivity itself has not benefited as much as in sub-Saharan Africa as in other regions undergoing trade integration, as evidenced by the slopes of regional trajectories in Figure 10. Over 1990–2010, the increase in labor productivity generated by each percentage point increase in trade openness has been five to eight times lower than in Asia, Latin America, or emerging Europe—a strong reminder that increased trade openness does not necessarily translate into structural transformation and a switch to higher-productivity activities. For these changes to materialize in conjunction with the expansion of trade, accompanying policies have to be in place.

Figure 10.Trade and GDP per Person Employed, 1990–2011

Sources: Penn World Tables 8.0.; and World Bank, World Development Indicators. Note: Only emerging market and developing countries from each region are considered.

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