Debt and integration: African debt dynamics and its implications on economic Pan-Africanism

Abstract

This study explores the relationship between foreign debt accumulation and intra-African trade, specifically investigating how external debt impacts both the total volume and the proportions of intra-African exports and imports in a country’s total trade portfolio. Using a fixed effects panel model, data was analyzed from 19 African countries (balanced panel) and 33 countries (unbalanced panel) over the period from 2005 to 2022. The findings reveal that while external debt does not have a significant direct impact on the overall volume of intra-African trade, it indirectly affects trade through its influence on inflation, which negatively impacts trade. Additionally, governance quality and political stability emerged as significant factors, with better governance linked to a shift toward global trade and political stability showing marginally positive effects on intra-African trade. Diagnostic tests indicated the presence of heteroskedasticity and autocorrelation, suggesting the need for further model refinement. The study concludes that external debt impacts intra-African trade indirectly, emphasizing the critical role of broader economic conditions and governance structures in shaping trade dynamics within Africa.