The trade and poverty nexus has been extensively studied, but the findings remain mixed and are very often sensitive to modeling choices and different data sources. To further probe into the complex trade and poverty linkage, this study assesses the moderating effect of education on the trade and poverty nexus for the African continent.
Using a panel autoregressive dynamic lag model (PARDL) and data from 1990 to 2019, the results confirm the complementarity of trade and education in the quest for reducing poverty in both the long run and short run. There is also support for the importance of economic growth in reducing poverty; similar results were obtained for government spending reducing poverty levels. The Dumitrescu–Hurlin causality test is further adopted to assess any causal relationship between trade and poverty.
A unidirectional causality between trade openness and poverty reduction is noted. Analogous effects were found for trade openness, economic growth, education and poverty reduction.
While the study shows that trade openness will promote social welfare, policymakers should implement policies to encourage diversification of exports beyond certain commodities to promote the resilience of the African economies. Boosting value addition through industrialisation and encouraging technology transfer will further maximise the benefits of trade on social welfare. Trade policies should be designed to embed the marginalised groups through the provision of targeted support, investment in infrastructure and better access to markets and finances.
Since the paper found that education is a complementarity factor to trade in reducing poverty, investment in education is crucial and hence expanding access to education through subsidies and scholarships and other targeted interventions is required. A higher level of education will act as a means to improve the benefits of trade for poverty reduction in Africa.
Theoretically, the effect of trade openness on poverty alleviation is ambiguous. While freer trade regime is debated to alter relative factor prices in favour of the more abundant factor. If poverty originates from the abundance of labour, then superior trade openness should contribute towards higher labour prices and a poverty reduction. However, such may not be the case if the reallocation of factors is hindered. This theoretical ambiguity on the trade–poverty nexus is also found in the empirical literature (Le Goff and Singh, 2014). To resolve this opacity, the present paper employs the PARDL method and investigates whether any links exist between trade openness and poverty reduction in selected African countries from 1990 to 2019.
