percent higher than what they are now if that country had the quality of institutions of Bangladesh in both dimensions of rule of law and control of corruption. This is a very small figure compared to the competitiveness gap attributable to Uganda’s more adverse economic geography.

# **6. Conclusion**

This paper is a micro-econometric assessment of the role of economic geography and institutions in Africa’s marginalization in world trade in manufactures. It is based on the estimation of a structural firm level exporting equation on a cross-country sample of manufacturing establishments drawn from 188 cities. We read from the raw data that average exports per establishments are smaller for African firms than for businesses in other regions. This is in part because African firms have more adverse economic geography than firms in other regions. It is in part because their institutional environment is poorer. The effect of economic geography on exports has two distinct channels. One is lower foreign market access, meaning that the typical African firm is located further away from wealthier or denser potential export markets. The other is lower supplier access, meaning that African firms face steeper input prices, in part because they are further away from otherwise cheaper foreign suppliers, and partly because of the higher prices of domestic substitutes for importable inputs. The effect of institutions on exports is also partly transmitted through lower supplier access and lower foreign market access. But institutions affect exports directly also.

There is no evidence of average exports per firm being lower for Africa once we account for the effects of economic geography and institutions. Given the strong interaction between the effects of economic geography and of institutions on exports, and given the extreme heterogeneity of the region in both respects, it probably is not useful to compare the relative strength of institutions and geography for the region as a whole. The reason is that the outcome would depend on which African country is being compared and against which non-African benchmark. Depending on the choice of subject and comparator, there are scenarios in which economic geography would seem to account for the greater share of observed exporting gaps. There are also cases in which institutions are by far the more important factor. For example, we show that, a far greater share of the export gap of Uganda vis-à-vis Morocco is explained by Uganda’s poorer institutions than that which can be accounted for by Morocco’s proximity to Western Europe and its greater economic density. On the other hand, the fact that Uganda’s average firm level exports are so much lower than Bangladesh’s seems to have relatively little to do with institutional gaps.

It is only fitting that we conclude by pointing out the more serious of the limitations in our method and data by way of qualifying our results. The main reservation regarding method is that we would be more confident of the validity of our instruments if we directly tested for over identification and the weak instrument problem directly in a tobit setting. It also remains to be seen whether or not our main conclusions hold up in analysis based on a similar firm level dataset, but one drawn from a larger and more 23