Effects of East African community customs union on trade and economic growth in Kenya

Abstract

During the 1990' s the world experienced a new wave of regional integration agreements (RlAs) that reached unprecedented proportions. The increasing importance of regional integration agreements and in particular their extraordinary expansions during the 1990's are among the most salient developments of the international trading system and its believed to be a vehicle for the promotion of trade and economic growth. The main driver for increasing number of Regional Integrations Agreements on the African subcontinent is the need to increase regional co-operation by creating a unified economic bloc and building blocs for stronger integration between member countries that will eventually lead to the creation of an African Economic Community. The East Africa Community was resurrected in 1999 which was transformed to a custom union in the year 2005. One of the objectives of the custom union was aimed at improving trade between the member states. To facilitate this, transitional arrangements have been put in place to liberalize inter and intra-regional trade among the partner states. The objectives of this study were to determine the trade effect of the EAC custom union and to analyze the effect of intra-EAC trade on economic growth in Kenya. Time series data for the years 2000 to 2013 was used for analysis. The coefficient of the EAC dummy used to measure the effect of custom union was found to be statistically significant and positive. This finding shows that after the formation of the custom union, the volume of trade in Kenya has increased proportionately by 0.9083 percent. For the effect of the custom union on Kenya intra-EAC trade, the EAC dummy coefficient was also found to be positive and statistically significant. This means that after the formation of the custom union, the GDP of Kenya has proportionately increased by 0.6214 percent. The study revealed that the formation of the EAC Custom Union has had positive effect on trade and economic growth in Kenya. The findings also show that after the formation of the custom union, increase in the volume of trade for Kenya has been realized. Therefore the formation of the EAC· customs union is an important step in the process of deepening regional integration among the member states.