Foreign aid as soft power and the political economy of trade defection: evidence from Ghana’s intra-African trade

Abstract

Purpose This study examines whether foreign aid influences trade alignment and contributes to trade defection from regional partners. Using Ghana as a case study, it investigates the impact of European Union (EU) aid on intra-African trade. Design/methodology/approach The study integrates soft power, trade diversion and dependency theories within a gravity-model framework. Panel data on Ghana’s trade with 35 African countries were analysed using instrumental-variable two-stage least squares and instrumental-variable generalised method of moments estimators. Findings EU aid is negatively associated with both Ghana’s exports to and imports from African partners. The results remain robust across alternative specifications, suggesting that aid may influence trade direction by strengthening extra-regional economic linkages at the expense of intra-African trade. Research limitations/implications The analysis focuses on Ghana and relies on aggregate aid measures. Future research should examine disaggregated aid flows and comparative African cases to better understand aid-induced trade realignment. Practical implications Aid-funded infrastructure, trade facilitation and industrial programmes should be aligned with African Continental Free Trade Area (AfCFTA) objectives to strengthen regional value chains and intra-African trade. Social implications Stronger intra-African trade can support industrialisation, employment creation and long-term economic resilience across Africa. Originality/value The study reconceptualises foreign aid as a soft power instrument that shapes trade alignment and introduces the concept of trade defection within a regional integration context. It provides new evidence on the relationship between aid and intra-African trade under the AfCFTA framework.

The authors' abstract, as published at the source. African Journal of Economic and Management Studies, 2026 · DOI ↗