Exporters in Africa: What Role for Trade Costs?

Abstract

This paper investigates the role of trade costs for exporter dynamics in Africa. In comparison to exporters from other regions, African exporting firms are fewer, smaller, and relatively less diversified in terms of products and destinations. African countries also display the highest rates of entry, exit, and turnover of exporting firms, exporting products, and export destinations. This suggests that Africa’s exporting activity is volatile and subject to much experimentation, with exporters facing difficulties maintaining trade relationships. The analysis also confirms that trade costs are a crucial factor in explaining exporter performance in Africa vis-à-vis other regions, but also among African countries. Trade costs play a disproportionate role in affecting the size of new exporters and the survival of exporters in Africa. Also, trade cost differences across African countries are a relevant factor in explaining the lower market diversification of exporters from landlocked countries. A key implication is that the African Continental Free Trade Area can bring many benefits in terms of export flows and destination markets. Yet, without strengthening productive capacities, the diversification of export products will likely remain limited.