What Determines Bilateral African-Asian Trade Flows Relative Roles of At-

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Africa’s trade performance on a global basis or its trade performance vis-à-vis
Asia in particular. This indicates the robustness of the estimated model.
At-the-Border Factors
As expected, the estimates show that formal trade policies do matter for exports and imports of African countries. Yet only manufactured exports of
African countries seem to be significantly negatively impacted by import trade restrictions and, moreover, only when behind-the-border and between- the-border factors are also taken into account. For (broader) merchandise trade, the multivariate analysis suggests that once between-the-border and behind-the-border impacts are also taken into account, the significance of trade restrictiveness of importing countries tends to diminish significantly.
This points to the importance of behind-the-border and between-the-border factors even after allowing for the impact of at-the-border policies. The finding of a positive regional trade agreement (RTA) effect is consistent with other empirical studies. Through lowering within-bloc trade barriers, RTA participation may cause countries to trade more.
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Alternatively,
intra-bloc trade may grow by diverting flows from extra-bloc trade. In either way, formation of RTAs generates more trade within the blocs.
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The effect of RTA formation is not only increasing the overall volume of trade but also may likely affect the product composition of exports within and outside the
RTAs, partly by diverting trade flows away from countries outside the bloc.
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This might be one of the reasons why the RTA variable does not have a significant impact on manufactured imports to Africa, while it does for the general merchandise import flows to Africa. The weak manufacturing base in Africa does not cause a diversion of manufactured product flows toward intra-bloc trade. Preferential market access through AGOA and EBA has a positive and significant coefficient only for manufactured exports. This is consistent with the fact that most products benefiting from AGOA and EBA
are manufactured products, whereas agricultural products do not receive equal benefits of duty-free market access to those markets.
Behind-the-Border Factors
Our estimated model provides clear empirical evidence that a poor domestic business environment in the form of high barriers to entry and poor power infrastructure substantially restricts exports, particularly for African countries’
exports of manufactured products. It is quite straightforward that better power infrastructure improves productivity of domestic producers, thereby
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strengthening their export competitiveness. Better power infrastructure also attracts foreign investors who would be more prone to produce for export markets. The coefficient estimates from the augmented gravity model underpin this relationship between export performance and power infrastructure. For exports from Africa, domestic business-related barriers measured in terms of number of procedures for starting and operating a business have a significantly negative impact on exports by African countries. Regulatory burdens in African countries not only increase business transactions costs and reduce productivity, they also pose barriers for new businesses to enter.
Figure 2.29 shows how a 10 percent improvement in some selective between-the-border and behind-the-border factors increases exports of
African countries, based on the estimation results of our augmented gravity model (table A. Improving domestic business-related procedures would visibly improve export performance of African countries. This applies not only to manufactured exports, but also to exports in general. A 10 percent improvement inefficiency of domestic business procedures is associated with 38 percent larger bilateral exports of African countries. Improvement in power infrastructure would also have a high positive impact on exports,
particularly on manufactured exports. A 10 percent improvement in power infrastructure–services quality would increase exports by 15 percent. That there is a relatively strong impact on exports of behind-the-border factors is an important finding. Improvements in domestic business procedures or in power infrastructure–services quality are essentially enhancing domestic production and therefore, in one aspect, should be neutral to exports. Such domestic impacts should be mostly subsumed under GDP and thus already captured in the model. The sizable positive impacts of the behind-the-border factors on exports hint at significant positive spillovers in improving efficiency. A large body of literature shows that there is a clear linkage between productivity and propensity to export both at the country level as well as at the firm level. Exports to each market require certain fixed costs unique to exportation. Firms choose to export and engage in cross-border arm’s length transactions only if they are productive enough. Also, several studies point out that higher domestic productivity allows firms to export not only in regional markets but also to geographically more distant markets. The efficiency gain from improving behind-the-border constraints appears to generate sizable improvement in trade flows.
Between-the-Border Factors
The estimated model suggests that customs efficiency is an important
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between-the-border factor affecting Africa’s exports. On both general merchandise exports and manufactured exports, the results show significantly negative impacts of poor customs clearance procedures for exporting products. While the number of necessary documents for customs clearance is used hereto measure inefficiency of customs procedures, similar results are obtained from using alternative ways of measuring the procedural constraints in customs, such as number of required signatures or total time required to clear customs. Our finding for African trade agrees with evidence from other research that addresses customs efficiency and other trade logistics, both at the country and industry levels as well as at the firm level.
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The positive effect of port infrastructure quality, capturing both airport and seaport quality, seems to be much more pronounced in affecting
African imports as opposed to exports. For all types of trade flows and for both merchandise trade as well as manufactured trade, higher quality of port infrastructure leads to more imports.
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IT infrastructure is found to also significantly affect African bilateral trade flows.
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Better Internet access in exporting countries is positively related to export flows. The insignificant result for importing countries may suggest that the Internet is increasingly utilized as a tool for suppliers to build their networks with buyers rather than a tool for consumers to source products—at least in the context of African exports and imports. It may also be the case that the use of the Internet goes much beyond simply reducing searching costs of sellers and
FIGURE 2.29

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