Infrastructure and the growth effects of trade: New evidence from African countries

The purpose of this paper is to examine the impact of infrastructure on the trade-growth relationship in a large number of Africa countries. While many African countries have increased the ratio of trade to GDP in recent years, SSA countries in particular have the lowest (average) levels of infrastructure indicators. Access to electricity, paved road density and urbanization are all much lower than in other regions. Not only does SSA have low levels but the gap with other regions has increased in some areas. For example, over the period 1995-2010, East Asia and the Pacific increased electric power consumption per capita by about 267%. While Latin America and MENA increase it by 88% and 178%, respectively. In SSA, electric power consumption per capita rose by a mere 5% over the period 1985-2010. I use 1985-2011 country-level data and Arellano-Bond generalized method of moments (GMM) estimation technique, and control for several variables that have been found to influence growth. I focus on the nature and magnitude of the impact of two types of infrastructure: electrical power and road density, and explore how infrastructure influences the effects of trade on growth.   Preliminary results suggest that infrastructure enhances the growth effects of trade bit only after reaching a threshold level. Overall, the results suggest that poor-quality infrastructure in Africa not only reduces the benefits from trade, by making it smaller and too costly, but also negatively affects industrial development. I discuss the policy implications of the empirical results in the last section of the paper.