Impacts of Regional Integration and Market Liberalization on Bilateral Trade Balances of Selected East African Countries: Potential Implications of the African Continental Free Trade Area
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Date
2024-06-19
Authors
Onono, Perez
Omondi, Francis
Mwangangi, Alice
Journal Title
Journal ISSN
Volume Title
Publisher
mdip
Abstract
This study examined the effect of free trade on intra-African bilateral trade balances for
Kenya, Rwanda, Uganda, and Tanzania to assess the potential implications of the African Continental
Free Trade area. The four countries have experienced persistent trade deficits. Whether free trade
within Africa can improve the national trade balances, and the drivers of bilateral trade balances
are important questions for policy and strategic programmes for the countries to make the most
gains from free trade area. The econometric model estimated for each country is an extension of the
standard Keynesian model of trade balance to include determinants of bilateral trade flows from
the gravity model. Quantitative analysis using panel regression was augmented with qualitative
data from interviews with trade policy experts and trade officials from various African countries
and focus group discussions with small-scale cross-border traders at the Busia and Namanga border
posts in East Africa. Findings show that complete tariff elimination on intra–African trade may not
impact the bilateral trade balances of Kenya, Rwanda, and Tanzania but could improve bilateral
trade balances for Uganda by 6 percent. Within the free trade areas, Uganda’s bilateral trade balances
were higher within the Common Market for Eastern and Southern Africa but lower within the East
African Community, than outside these areas. Kenya’s trade balances were lower in the Common
Market for Eastern and Southern Africa, than otherwise. On the contrary, no significant difference
in trade balances is established for the membership of Kenya, Rwanda, and Tanzania in the East
African Community; Rwanda in the Common Market for Eastern and Southern Africa; and Tanzania
in the Southern African Development Community, when compared to trade balances with nonmembers. The importance of macroeconomic factors is demonstrated by the increase in bilateral
trade balances with higher relative price levels of trade partners; the reduction with increase in
relative production and expenditure capacities of trade partners; and improvements following a
depreciation of home currency for Tanzania and Uganda, yet a worsening of trade balances in Kenya.
A lack of harmony in documents required for cross-border movements within the free trade areas
is reported as counterproductive. All African countries should therefore fully implement protocols
and cooperate in the harmonization of trade procedures for the free movement of people and goods
across borders. Country policies and trade programmes should pursue increased productivity in the
leading intra-African export sectors and diversify exports via foreign direct investment in strategic
sectors to substitute imports from outside Africa; reduce costs of production; increase the quality of
products; and improve transport infrastructure.
Description
Article
Keywords
regional integration, free trade areas, tariff liberalization, bilateral trade balance, African continental free trade area
Citation
Onono, Perez, Francis Omondi, and Alice Mwangangi. 2024. Impacts of Regional Integration and Market Liberalization on Bilateral Trade Balances of Selected East African Countries: Potential Implications of the African Continental Free Trade Area. Economies 12: 155. https://doi.org/ 10.3390/economies12060155