Trade Logistics, Trade Costs and Bilateral Trade Within Sub Saharan Africa – A Panel Estimation

Abstract

World trade has expanded over the last few decades, but the trade within Africa especially among Sub-Saharan African (SSA) countries has been low. Globally there has been a reduction in tariff rates, reducing trade costs in general, but the SSA region still records the high costs of trade as compared to other developing regions and this has hindered the flow of trade within the region (World Bank Doing Business report, 2013). SSA’s poorly developed trade logistics in the form of poor infrastructure, weak institutions, and trade facilitation have largely accounted for the region’s high trade cost (Turkson, 2011; Heokman and Nicita, 2008). Using a logistics augmented gravity model, the study analyzes the impact of improvements in trade logistics performance (aggregated and disaggregated) on the volume of bilateral trade between countries in SSA over a period 2007 to 2012. With three rounds of the Logistic Performance Index (LPI) published by the World Bank, and trade indicators from UNCOMTRADE and CEPII, the Hausman Taylor estimation results indicate a positive impact of logistics performance improvements of exporter country on volumes of bilateral trade among countries in SSA over time. Findings recommends the need for both private and public institutions that have direct or indirect influence on infrastructure and trade facilitation to develop innovative approaches to help tackle the challenges of high transport and transaction costs, and weak institutional capacities facing many countries in SSA, as a means of boosting trade within the region, increasing their ability to compete in the global economy and attracting Foreign Direct Investment (FDI).