Application of Structural Equation Modeling in Microeconomic Research in Africa: A Case Study of the Impact of AfCFTA on the Manufacturing Industry in Zambia

Abstract

African universities conduct substantial research on African economic development challenges, yet many applications rely on statistical methods that may be suboptimal for addressing complex policy questions in which causal relationships operate through multiple, interrelated mechanisms. This paper argues that Structural Equation Modeling (SEM), grounded in Critical Realist ontology, enables African researchers to model complex causal mechanisms, test indirect pathways, account for latent variables, and provide more nuanced policy guidance than traditional statistical methods. The paper grounds this methodological argument in Critical Realism philosophy (Bhaskar, 1978; Sayer, 1992; Archer, 1995), which emphasises generative mechanisms and the stratified nature of social reality. Drawing on this philosophical foundation, the paper develops a comprehensive SEM framework for analysing the impact of the African Continental Free Trade Area (AfCFTA) on Zambia's manufacturing sector, specifying latent constructs for institutional quality, trade policy implementation, and manufacturing competitiveness. The paper concludes that SEM represents an essential methodological tool for African researchers seeking to understand the context-specific, mechanism-dependent nature of economic policy impacts.