Impact of Capital Flows on Intra-African Trade: An Analysis of Economic Integration
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Abstract
This study examines the impact of capital flows on intra-African trade, focusing on the roles of foreign direct investment (FDI), external debt, GDP, and geographical distance in shaping trade patterns across African countries. Using Poisson Pseudo-Maximum Likelihood (PPML) estimation, the analysis explores how these variables influence bilateral trade between African nations. The results show that while GDP positively influences trade, both exporting and importing FDI exhibit negative relationships with trade flows, suggesting that FDI may not always be directed toward trade-enabling sectors. External debt, however, has a positive effect on trade, potentially by financing infrastructure improvements that facilitate market access. Distance remains a significant barrier to trade, highlighting the need for investment in logistics and regional infrastructure. The study contributes to the literature on economic integration by offering a nuanced understanding of the complex interplay between capital flows and trade dynamics, providing policy implications for enhancing intra-African trade and fostering deeper economic integration on the continent.
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