Trade integration is a potentially powerful driver of economic growth in developing countries, particularly if it creates export opportunities and promotes value addition in manufacturing sectors. Given the prominence of agriculture in Sub-Saharan African countries - both as a source of employment and as an earner of foreign exchange - increased market access for agricultural exports is a common interest in these countries’ trade negotiations.
Trade negotiations, however, typically involve a complex set of interactions, bilaterally, regionally, or multilaterally. Therefore, countries need to understand how they might be affected by these agreements, and also how different agreements might interact with one another.
This brief provides some insight on the matter for Sub-Saharan Africa in general, and Malawi in particular, based on simulations of actual, proposed, or hypothetical trade integration scenarios.
- Policy lessons for SSA and Malawi
Avoid overspecialization in unprocessed agricultural exports: For countries such as Malawi, multilateral trade liberalization may lead to increased specialization in unprocessed agricultural exports at the detriment of domestic value addition. This contradicts development policy efforts to raise value addition and suggests that attention should perhaps be directed towards regional integration options.
Improve the competitiveness of transformed products: The results illustrate that Malawi in particular is not competitive globally as far as production of agro-industrial goods, such as sugar, is concerned. Other SSA countries also experience declines in their trade shares in certain markets. Increased competitiveness through adoption of productivity-enhancing technologies could raise the gains from trade liberalization.
Think regional: Regional integration allows most countries in SSA to combine increased exports of both processed and unprocessed agricultural products. However, benefits are not shared equally, with large economies such as South Africa reaping most of the benefits. Smaller and less competitive countries should be aware of their disadvantaged position in the region when entering into integration negotiations.
Trade policy needs to be harmonized with other development policies: Domestic development policy and trade policy have the potential to jointly reinforce development objectives, but understanding their interplay is important. For example, trade policies, which improve market access, will be ineffective if domestic producers are not able to respond by raising production. Similarly, domestic policies that raise production will fail if they are not complemented by policies that improve domestic and international market access.
Future research: Global CGE models operate at a higher level of aggregation and are somewhat limited for understanding country-level implications of trade integration. Future research should focus on the interaction between trade and development policies, which may require linking national and global CGE models in various innovative ways.
- * Readers can access the four page brief, a product of IFPRI's MALAWI STRATEGY SUPPORT PROGRAM (MaSSP), here. It is dated January 2012.
