Panel Data Analysis of African’s Trade: The Gravity Model Approach

Abstract

The theoretical justification of the gravity model in the analysis of bilateral trade was applied in the generalized gravity model to analyze the African’s trade with China and its major trading partners using the panel data estimation technique. Estimate of the gravity model of trade (sum of exports and imports), the export and import gravity model. Data for the period 1980-2015. The empirical results show that African’s trade is positively determined by the size of the economies, GDP, per capita GDP, FDI, a differential of the countries involved and openness of the trading countries. The major impacts of African’s exports are the exchange rate, partner countries’ total import demand and openness of the Africa economy. All three factors affect the African’s exports were found positive. The exchange rate, on the other hand, indicated no effect on the African’s import; rather than the imports were affected by inflation rates, per capita income differentials and openness of the countries involved in the trade. Transportation cost is found a significant factor in influencing African’s trade negatively. Also, Africans imports are found to be influenced to a great extent by the distance between China and African. The country-specific effects show that African would do better by trading more with its neighboring countries. The indication of trade sector effects matter and that potential product vary considerably in their sensitivity to distance and country factors which have prominent revealed comparative advantage. African should diversify its exports and improve its trade diplomacy.

Keywords:  Panel data, gravity model. potentials, export, China, and Africa.