Political instability and merchandise trade in Africa

This paper on political instability (PI) and merchandise trade (MT) in Africa analyses data for 52 African countries from 1996 to 2020. Using the system generalized method of moments (SGMM), the paper analyses the relationship between political instability and merchandise trade from two perspectives. Results from the MT → PI perspective, indicate that greater merchandise exports relative to merchandise imports are associated with lower political stability (PS). Disaggregating the components of merchandise trade, larger exports of manufactures relative to imports of manufactures are found to be associated with greater PS, while larger fuel exports relative to fuel imports are associated with lower PS. From the PI → MT perspective, political stability is found to have a statistically significant direct relationship with the export of manufactures, while it has a statistically significant inverse relationship with the export of agricultural raw materials and fuel. It is also found that political stability has a statistically significant inverse relationship with the import of manufactures and agricultural raw materials, while it has a statistically significant direct relationship with the import of fuel. The paper, therefore, concludes that political instability is associated with a decline in African export of manufactured goods and with increases in the export of agricultural raw materials and fuel. The policy implication of these findings is that it is expedient to diversify African economies into exports of manufactures through value addition to agricultural raw materials while improving the political and security environments in these countries by improving the quality of institutions and ensuring adherence to laws.