Does Trade Promote State Capacity in Ghana? A Synthetic Control

Author(s)

Jeremy E. J. Streatfeild

Can changes in trade volumes explain improvements in the capacity of African states to collect revenue and to provide public services? Applying European trade literature, this paper analyzes whether Ghana’s state capacity is stronger than it would have otherwise been, due to its recent trade growth. This research represents a departure from most economics literature on trade, which typically focuses on improvements to economic performance. Instead, this paper addresses a frequently overlooked aspect of trade—its impact on a state’s political economy. Identifying the roots of stronger African state capacity is an important objective, in light of the concern expressed by Thies (2009) that African states, in their current form, may just limp along, hampered by their endowment of inhospitable geography. Improvements in a state’s capacity for governance mean it can better provide public goods, combat corruption, and attract private investment. The findings presented in this paper not only are consistent with the hypothesis that trade growth has had a measurable impact on Ghana’s state capacity, but—using a synthetic control—also demonstrate the rate of change. Although the weakness of African states has received much attention, the findings in this paper suggest that capacity levels can be directly bolstered through trade-promotion policies.