Modeling the Impact of Non-Tariff Barriers in Services on Intra-African Trade: Global Trade Analysis Project Model

Abstract

In 2015, the African Union launched negotiations to establish African Free Trade Agreement named AfCFTA (African Continental Free Trade Area). In this study, we pointed out the importance of the services sector in intra-African trade. It examines the effects of AfCFTA on intra-African trade in the medium and long term. It assesses the impacts of a reduction of 90% in import tariffs plus 50% in non-tariff barriers (NTBs) on GDP, regional income, and bilateral trade between the ECOWAS (Economic Organization of West African States) and SADC (Southern African Development Community) zones. We use the GTAP Computable General Equilibrium model and the Ad Valorem Equivalents (AVE) of NTBs in services computed using the Services Trade Restrictiveness Indices (STRI) of the World Bank database according to the methodology of the Australian Productivity Commission. Our results suggest that AfCFTA is associated with an increase in GDP and regional household income in the medium and long term for the ECOWAS and SADC regions. Moreover, the liberalization of services increases the two components in the medium and long term for the two integration areas. Bilateral exports of agricultural and manufacturing goods between the two trading blocs increase in the medium and long term. The reduction of NTBs in services is leading to an increase in bilateral exports of agricultural and manufacturing goods in the long run. South Africa remained the largest exporter of manufacturing and agricultural goods. The lowering of barriers to trade in services is leading to a considerable increase in bilateral trade in services between the two trading blocs. Moreover, this trade agreement creates a trade diversion in the long term, but the gain in welfare remains positive and significant in the long term.