Abstract
There has been considerable research on the effect of democracy on trade openness since the 1980s when development strategies toward free trade and democracy were rapidly adopted in developing countries. Most studies have focused on Asian, Latin American, and former soviet bloc countries and few studies have focused on Sub-Saharan Africa (SSA). This study is an attempt to fill that gap and uses a gravity model approach to test the effects of democracy in SSA on trade. Our results show that democracy has substantial impact on openness to trade and SSA democratic countries will trade more with other countries irrespective of their level of democracy, when compared to non-democratic countries. The results do not vary much even when we use different sources of democracy variable. Also, democratic countries trade more among each other perhaps due to having a shared business environment.
Highlights
Previous studies have argued that democratic economies have better functioning institutions and respect for the rule of law as political freedom drives the framework for effective institutions
Sub-Saharan Africa (SSA) is a land of contrasts with some countries having Gross Domestic Product (GDP) 300 times bigger than others and GDP per capita that are over 100 times more than others
The results of the present paper strongly suggest that SSA countries that have embraced democratic governance enjoy more trade than other SSA
Summary
Previous studies have argued that democratic economies have better functioning institutions and respect for the rule of law (property rights, respect of contracts) as political freedom drives the framework for effective institutions. They note that since democratic countries have a better institutional framework, they trade much more compared to countries with high tariffs. 2. Recent Economic, Political, and Trade Development in Sub-Saharan Africa (SSA)
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