The Potential Impact of African Continental Free Trade Area on Trade: A GTAP-HET Analysis.

Abstract

he African Continental Free Trade Area aims to reduce trade barriers across Africa, promote trade, capital and labor mobility, and promote industrial development. Kenya’s exports are significantly reliant on African markets and Kenya was among the first countries to ratify the agreement. On average, Kenya exports 40 percent of its total exports and 70 percent of its manufactured exports to African markets annually. While previous studies have investigated the potential impact of African Continental Free Trade Area on trade, most of the studies are not country specific and primarily uses Armington trade model. This study uses a heterogeneous firm’s Global Trade Analysis Project model (GTAPHET) to investigate the potential impact of the African Continental Free Trade Area on trade in Kenya. The model provides a structure for comparing results from Armington, Krugman, and Melitz trade models in a general equilibrium model. The study found that, first, the African Continental Free Trade Area will increase Kenya’s exports and imports, and the Melitz model projects double the increase under the Armington and Krugman models. Second, rubber and plastic exports will experience significant growth compared to other sectors. Third, Kenyan trade with Central Africa and Southern Africa will increase significantly due to the agreement. In light of these results, policymakers should prioritize support for firms in key sectors poised for growth under the agreement and strategically enhance trade with Central Africa and Southern Africa.

John Mburu

PhD Candidate in Economics

My research interests include trade, public finance, gender, econometrics, poverty, and inequality.