What is it about?

The Sub-Saharan African region has for the recent decades vigorously opened up its markets to the world and regional trade integration is high on the agenda in order to reap the associated advantages. However it is not clear how the region would benefit from this trend. The paper investigates the quantitative effect of opening up trade to the world on the allocation of consumption risk. Additionally, we observe a deteriorating trend of institutional quality in these countries. This prompts us to examine the degree to which institutional arrangements among Sub-Saharan Africa countries determine the extent of risk sharing they experience. Since the problem of many countries in the developing world is financial credit, the extent to which financial depth contributes to consumption risk sharing is given prime attention. Then we find it appropriate to investigate whether the contribution of trade integration to consumption risk sharing depends on institutional quality and/or financial depth.

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Why is it important?

Our study contributes to the scanty empirical literature on risk sharing in Africa and Sub-Saharan Africa in particular but also provides a good foundation for relevant policy formulation especially with regard to the preparation and implementation of the scheduled monetary union projects in the selected regions in Africa.

Perspectives

In my view, the idea of trade liberalization appears to have come with its own pros and cons. It is imperative to investigate it influence on how consumers could share risk. Moreover, when one observes from existing data how countries particularly from Sub-Saharan Africa perform with regard to issues of corruption, governance, property rights, freedoms and other indicators of institutional quality, amidst stagnant growth in credit accessibility, one is led to think that consumption risk would inevitably be affected. A study that examines the linkage that perhaps exists among these concepts - consumption risk sharing, institutional quality and financial depth - is in my view a step in the right direction.

Dr John Bosco Nnyanzi
Makerere University

Read the Original

This page is a summary of: Trade Openness and Risk Sharing in Sub-Saharan Africa: Do Institutions and Financial Depth Matter?, Global Economy Journal, January 2016, De Gruyter,
DOI: 10.1515/gej-2015-0013.
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