Infrastructure and intra‐regional trade in Africa

Abstract This study examines the impact of infrastructural development on bilateral trade flows using a panel of 51 African countries from 2003 to 2015. An infrastructure‐augmented gravity model was estimated with different indicators of infrastructural development. Three aggregate indicators were computed namely: (i) a soft infrastructure index, (ii) a hard infrastructure measure, and (iii) an effective infrastructure index combining both soft and hard infrastructure components. The soft and hard infrastructure indices were constructed using the principal component analysis. Disaggregated hard infrastructural development indices for transport, information and communication technologies (ICT), and electricity were also used to assess their differential effects on intra‐African trade. By adopting the Pseudo Poisson Maximum Likelihood estimator with High Dimension Fixed Effects, the results confirm that both hard and soft infrastructures matter for trade in Africa. A disaggregation of the hard infrastructure index reveals that the electricity composite index has a greater impact on trade flows relative to transport and ICT infrastructures. Importantly, there is evidence that soft infrastructure matters most and complements hard infrastructure in the region. Targeted policies and resources should be channelled towards improving energy infrastructure and soft infrastructure in terms of streamlining trading rules and procedures to better propel and maximise the benefits of intra‐African trade.