African Continental Free Trade Area: Economic and Distributional Effects

The African Continental Free Trade Area (AfCFTA) agreement will create the largest single market in the world—encompassing 55 nations, 1.3 billion people and an economic area with a GDP valued at $3.4 trillion. This paper quantifies the long-term economic and distributional implications of the AfCFTA using a global computable general equilibrium model (CGE) and a microsimulation framework. The analysis goes beyond previous studies that have largely focused on tariff and nontariff barriers in goods—by including the effects of services and trade-facilitation measures, as well as distributional impacts on poverty, employment, and wages of female and male workers. Simulation results suggest that the agreement could double intra-regional trade, increase real income in AfCFTA countries by 7 and lift 30 million people in the continent from extreme poverty. In addition, the agreement would increase employment opportunities and wages for unskilled workers and help to close the wage gap between men and women. While on aggregate, distributional outcomes improve, some countries can experience a worsening of the wage gap faced by unskilled, female and young workers indicating the importance of complementary policy reforms.