ABSTRACT
This chapter presents stylized facts on macroeconomic instability in Africa over the 1986-2000 period whilst the section following provides brief background information on Africa's experience with trade liberalization. Standard theoretical explanations for the link between trade liberalization and macroeconomic instability are then analysed, followed by a presentation and discussion on the results of the estimations. The chapter examines the policy implications of the analyses and offers some recommendations on how to deal with vulnerability to external shocks and reduce macroeconomic instability in African countries. It also presents results of OLS estimations of equation 1 for each of the three dependent variables of interest—output, consumption, and investment. In the 1970s, most countries in Africa used trade restriction as an important instrument for protecting domestic industries and for economic development in general. Regarding the equation for instability in the growth of real investment per capita, the results provide weak evidence that the trade regime contributes to instability in the dependent variable.
