Regional Trade and Economic Growth of East Africa Community States

Abstract

In light of the regional integration efforts, this study sought to find out the impact of regional trade integration on economic growth of East Africa Community. One of the provisions to increase the EAC intra-trade is Article 75 of the Treaty and the Customs Union (CU) Protocol whose implementation would increase the value and volume of trade within the EAC. GDP growth rate analysis shows a major disconnect between deepening integration and achievement of growth within a common market stage. This study was aimed at establishing a relationship between economic growth and regional trade, and confirm whether intra-regional or trade between trade bloc members and other independent countries has an impact on economic growth. The study covered the period from 2001 to 2014 during which time the East Africa Community has been in existence and having undergone various stages in integration. Secondary data from East Africa Community Partner States database and World Bank Development Indicators database have been used. A number of causality tests have been conducted to determine key indicators of causality between growth and regional trade in the East Africa Community region. Granger causality test was carried out between: regional trade and GDP and Total trade and GDP for each of the regions member state. To determine which variable spurs higher output, this research carried out a fixed effect technique. The study established that the impact of regional trade on the growth of East Africa Community counties varies among the member states. There is a direct link between GDP growth and regional trade for the case of Kenya, Tanzania and Uganda while Burundi and Rwanda show no significant relationship. Total trade and GDP growth have a bidirectional relationship in the case of Kenya while for the rest of the member states the relationship is unidirectional. The study also concludes that extra-regional trade spurs higher output than intra-regional trade for the East Africa Community. Based on the results, this study recommends that EAC governments should, therefore, implement policies that would enhance regional integration as the results show that integration is likely to promote the economic growth of the member states.