A new article was recently published in the African Development Review, a top-journal that reports on African-related public policy issues, by Badassa Chala – a professor in the department of economics at Ambo University in Ethiopia. Chala’s article investigated the relationship between economic freedom, the ease of doing business, and trade in global value chains (GVCs).
GVCs have become an incredibly important part of global trade, due to the fact that increased specialisation has meant that intermediate goods now move across borders at rates that were previously unfathomable. By participating in these GVCs, developing countries and/or many Sub-Saharan African countries can benefit in a myriad of ways. First, previous researchers have argued that countries which export through GVCs experience higher levels of economic growth. In addition, countries who participate in GVCs tend to be more productive and are able to better diversify their export portfolios.
With this in mind, the study argues that, holding all else constant, African countries that have an increase in their Economic Freedom of the World Report score of one point (published by the Fraser Institute), will also increase their participation in GVCs by 2.4%. The author of the study then disaggregates the economic freedom score and finds that 2 components of economic freedom- sound money and regulation – seem to have large impacts on GVC participation.
In the piece’s conclusion, Chala writes:
Therefore, policies that attempt to encourage SSA countries to participate in and upgrade their position along GVCs should focus on improving economic freedom, spotlighting on implementing proper regulation and sound money. It is also essential to improve ease of doing business by reducing number of procedures and amount of time required to start businesses, get access to necessary services and facilities such as electricity, build warehouses and enforce contracts. Moreover, countries in the region should undertake further trade policy reforms encompassing tariffs and non?tariff reductions to cut custom and other import duties on trade in GVCs. Furthermore, countries should reduce procedures and the amount of time needed to start and run new businesses.
This piece was a great reminder that economic freedom is critical for African countries to move forward, and it is great to see academic articles that seek to encourage policy makers to implement policies that are favorable to markets.
Alexander Jelloian
Alexander Jelloian is the Research and Project Manager at the Initiative for African Trade and Prosperity.
A new article was recently published in the African Development Review, a top-journal that reports on African-related public policy issues, by Badassa Chala – a professor in the department of economics at Ambo University in Ethiopia. Chala’s article investigated the relationship between economic freedom, the ease of doing business, and trade in global value chains (GVCs).
GVCs have become an incredibly important part of global trade, due to the fact that increased specialisation has meant that intermediate goods now move across borders at rates that were previously unfathomable. By participating in these GVCs, developing countries and/or many Sub-Saharan African countries can benefit in a myriad of ways. First, previous researchers have argued that countries which export through GVCs experience higher levels of economic growth. In addition, countries who participate in GVCs tend to be more productive and are able to better diversify their export portfolios.
With this in mind, the study argues that, holding all else constant, African countries that have an increase in their Economic Freedom of the World Report score of one point (published by the Fraser Institute), will also increase their participation in GVCs by 2.4%. The author of the study then disaggregates the economic freedom score and finds that 2 components of economic freedom- sound money and regulation – seem to have large impacts on GVC participation.
In the piece’s conclusion, Chala writes:
Therefore, policies that attempt to encourage SSA countries to participate in and upgrade their position along GVCs should focus on improving economic freedom, spotlighting on implementing proper regulation and sound money. It is also essential to improve ease of doing business by reducing number of procedures and amount of time required to start businesses, get access to necessary services and facilities such as electricity, build warehouses and enforce contracts. Moreover, countries in the region should undertake further trade policy reforms encompassing tariffs and non?tariff reductions to cut custom and other import duties on trade in GVCs. Furthermore, countries should reduce procedures and the amount of time needed to start and run new businesses.
This piece was a great reminder that economic freedom is critical for African countries to move forward, and it is great to see academic articles that seek to encourage policy makers to implement policies that are favorable to markets.
Alexander Jelloian
Alexander Jelloian is the Research and Project Manager at the Initiative for African Trade and Prosperity.