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Abstract

Since the announcement that trading was to commence under the AfCFTA agreement on 1 January 2021, full trading has been delayed due to challenges in finalizing tariff concessions and Rules of Origin requirements. In anticipation of the full commencement of trading under the agreement, numerous studies have emerged, primarily focusing on simulating tariff-based scenarios. The focus of these studies only captures observable trade barriers, neglecting the substantial unobservable frictions that affect cross-border exchange in Africa. Motivated by this limitation, I examine the ex-ante impact of the AfCFTA by employing bilateral border indicators within a structural gravity framework to examine how the elimination of the intra-AfCFTA border wedge would influence trade and welfare. I find evidence of substantial but heterogeneous potential trade creation and welfare gains across sectors, industries, and countries. Specifically, the partial equilibrium estimates suggest that sectors and industries currently facing higher border frictions are likely to realize disproportionately larger trade gains, ranging from 17% for mining and energy to 42% for services at the sectoral level and from 6% up to 115% at the industry level, following the full implementation of the AfCFTA agreement. The border-based general equilibrium welfare estimates demonstrate significant heterogeneity, with services showing the largest gains (up to 250%), followed by mining and energy (up to 158%), agriculture (up to 93%), and manufacturing experiencing the smallest gains (up to 57%). This border-based experiment is best interpreted as an upper-bound scenario that captures the long-run potential of continental integration under deep and effective implementation of the AfCFTA agreement. These findings provide a compelling economic case for expediting and prioritizing the full implementation of the AfCFTA despite current challenges, as doing so could substantially advance Africa’s economic development and integration objectives outlined in Agenda 2063.

Highlights:

Four years after trading was announced to commence on January 1, 2021, only 11 of 48 ratified countries are actively trading under AfCFTA rules through the Guided Trade Initiative (GTI). The primary bottleneck is Rules of Origin negotiations, creating a two-tier system where larger economies with advanced capacity access benefits, while smaller and least-developed countries that need regional integration most remain excluded by complex compliance requirements.

Empirical analysis reveals that full AfCFTA implementation would increase intra-AfCFTA trade by 17-42% across sectors, with industry-level gains of top earners ranging from 28% to 115%. Welfare distribution analysis shows smaller economies experience the highest costs of delay: Benin faces foregone gains of 250% in services and 158% in mining & energy, while Botswana loses 93% potential gains in agriculture. The countries that would benefit most from AfCFTA are precisely those unable to meet current implementation requirements.

Breaking the bottleneck requires fast-tracking services liberalization (no Rules of Origin needed), investing $100 billion in continental digital connectivity, adopting tiered compliance requirements enabling smaller economies to participate immediately, and establishing results-based financing linking infrastructure development to measurable AfCFTA utilization increases across all member states.

Overview

This repository provides a complete R implementation of the General Equilibrium Poisson Pseudo-Maximum Likelihood (GEPPML) methodology developed by Anderson, J. E., Larch, M., & Yotov, Y. V. (2018). GEPPML: General equilibrium analysis with PPML. The World Economy, 41(10), 2750-2782.

Overview

This project implements a Monte Carlo simulation framework to examine heterogeneous effects of Regional Trade Agreements (RTAs) on both trade and foreign direct investment (FDI) flows using staggered difference-in-differences estimation in a structural gravity setting. The analysis extends the pioneering work of Weidner and Zylkin (2021) to incorporate:

• Staggered RTA implementation across multiple cohorts (5 implementation periods)

• Joint analysis of trade and FDI outcomes in a partial equilibrium framework

• Cohort-specific treatment effects identification

• Dynamic treatment effect evolution over time

• PPML estimation with three-way fixed effects (exporter-time, importer-time, exporter-importer).