Bringing Pankaj Ghemawat to Africa: Measuring African economic integration

Abstract

A wealth of literature dealing with trade liberalisation, capital market liberalisation, labour mobility and related issues concerning globalisation asserts that economies that are more integrated with the global economy and, more specifically with their neighbours, tend to enjoy higher sustained levels of growth. Empirical evidence with solid quantitative findings recently conducted by Pankaj Ghemawat has confirmed that more 'open and connected' economies display higher rates of economic growth, higher per capita income levels and greater levels of human welfare. Against this backdrop, it is notable that the available evidence - whilst incomplete - suggests that African economies are amongst the least integrated in the world. Given that integration and connectedness matter, and that there are material gaps in the evaluation of integration for African economies, it is important to develop better measures of African economies' connectedness with their neighbours and with the world, how this connectedness is evolving and establish more comprehensive and robust means of economic integration compared to those historically available. Using Ghemawat's framework, which measures flows of trade, capital, information and people (TCIP) to determine connectedness, we develop the Visa Africa integration index to provide a more comprehensive and detailed gauge of economic integration for 11 African countries in three clusters: East Africa, West Africa and Southern Africa. The index results suggest that African economies are emerging off a modest base, with some economies demonstrating progressive structural improvements toward higher levels of integration with their respective regions and the world. East Africa, in particular, shows signs of rising connectedness over the survey period. The index also illustrates that some countries are more integrated globally than regionally and vice versa, which is important information for policy makers toward improving deeper and broader integration in their respective regions. The index builds on previous research in the broad area of integration and helps us better understand the challenges and opportunities presented by Africa's economic changes and some of the implications for economic growth.