Open economies work better! : did Africa's protectionist policies cause its marginalization in world trade?

Sub-Saharan Africa has declined in importance in world trade mainly because it has not remained competitive. External protection has not played a major role in this decline; indeed, OECD trade preferences gave Africa an advantage over many exporters. But Africa's own trade barriers are too high. Many studies show that liberal trade policies generally lead to superior growth, an important finding if Africa is to reverse its diminishing role in world trade.In the mid 1950s Sub-Saharan Africa accounted for 3.1 percent of global exports. By 1990 this share had fallen to 1.2 percent. The reasons for this decline are important for policy making.If external protection in OECD markets was an important contributing factor, the solution to Africa's trade problems requires liberalizing industrial countries' trade barriers. But if Africa's marginalization resulted primarily from inappropriate domestic policies that reduced the region's ability to compete internationally, changes in Africa's own policies are crucial for a reversal of adverse trade trends.Ng and Yeats find that Africa's extensive loss of competitiveness played a key role in its decline in world trade. If Africa had merely retained its 196264 OECD market shares, its exports now would be 75 percent ($11 billion) higher. In addition, global demand for the region's major exports grew considerably more slowly than demand for most other goods.In short, Africa's problem was two pronged: It experienced declining market shares for its major export products, which, in turn, were of declining relative importance in world trade. And it was unable to diversify its export base. As a result, it is now among the regions mostly highly dependent on relatively few export products and unlike all other regions this dependence has increased sharply over the past three decades.Empirical evidence developed by Ng and Yeats shows that external protection has not played a major role in this decline; indeed, OECD trade preferences gave Africa an advantage over many exporters.Trade restrictions and domestic policy interventions often create a bias against tradables, especially exports, that prevents the achievement of otherwise attainable growth rates. Import barriers in Africa are far higher than in developing countries with faster export growth, and appear to work against potential export products.If the region is to reverse its unfavorable export trends, it must adopt trade and structural adjustment policies that help make it competitive and help African exporters capitalize on foreign trade opportunities.This paper a product of the International Trade Division, International Economics Department is part of a larger effort in the department to identify barriers to developing countries' exports and assist in their removal. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Sarah Lipscomb, room N5 056, telephone 2024733718, fax 2025221159. Internet address [email protected]. (38 pages)The full report is available on the World Bank FTP server