Access to finance and intra-Africa trade efficiency

Abstract

This paper examines the impact of access to finance on intra-Africa trade efficiency using a panel dataset comprising 44 African exporters. Between 2008 and 2021, a stochastic frontier version of the gravity model finds intra-Africa trade to have been lower than its full potential by $1.1 billion on average. Exporters with better access to finance such as South Africa, Morrocco and Mauritius operated closer to their full potential. The effect of access to finance on intra-Africa trade is found to have been stronger between distant trading partners. This suggests that access to finance largely promotes intra-Africa trade through financing transportation and logistics. In view of these results, the analysis recommends policy efforts to improve access to finance in order to maximize trade between African countries.