Abstract
In the recent years, African countries have made efforts to achieve the Sustainable Development Goal (SDG 1 - no poverty) of the United Nations (UN) with unimpressive progress when compared to other regions of the world. The continent has experienced a persistent rise in its poverty level which has become a dominant issue. To stimulate economic growth, development and poverty reduction, various trade reform programmes have been initiated via trade liberalisation, of which cross-border trade (CBT) is one of them. This study aims to assess the effect of CBT on poverty reduction in Africa. It also investigates the effects of interaction on CBT and contiguity on poverty reduction in Africa. This is motivated to find out if the poverty reduction effect of CBT among countries that share borders in Africa will be more or less compared to the poverty reduction impact of CBT with the rest of African continent. The study uses balanced annual panel dataset for 51 African countries spanning 1995 - 2020. During the empirical investigation, the study utilises the Ordinary Least Square (OLS), Random Effect (RE) and the Arellano and Bond’s (1991) System Generalised Method of Moment (SGMM) estimation techniques as it controls for endogeneity. The results of the study show that the CBT effect on poverty reduction is significantly negative in Africa, while the interaction term effect of CBT and Contiguity on poverty reduction is significantly positive. This suggests that CBT within the rest of Africa is associated with significant poverty reduction, especially regarding poverty incidence and intensity, while CBT increases poverty among countries that share border(s). This does not align with the theoretical literature. The conclusion of the study is that the African poor level of investment in CBT infrastructures and maintenance have adversely affected the bilateral trade flows and benefits the poor stands to gain from CBT with their neighbouring countries, hence the potentials is underutilised. Therefore, the low investment level and gaps in CBT infrastructural development are the enclaves that limit poverty reduction and the potential of African citizens from taking the advantage of Africa-wide opportunities for their own development. Removal of this barrier will promote technology transfer, foreign direct investment, enhance growth and reduce poverty. Policy reforms and investment in CBT infrastructures will significantly contribute to the pursuit and achievement of SDG 1 of the United Nations in Africa.