Trade Creation and Diversion Effects of the East African Community Regional Trade Agreement: A Gravity Model Analysis

Trade Creation and Diversion Effects of the East African Community Regional Trade Agreement: A Gravity Model Analysis

This paper investigates the potential impact of the EAC on trade creation and diversion and seeks to establish whether the EAC Regional Trade Agreement has diverted or created trade using an expanded gravity model. Using a panel data set from 2001 to 2011 on seventy countries that trade mainly with the EAC partner states, static and dynamic random effects models were estimated. Results suggest that the implementation of the EAC treaty has created trade, contrary to popular belief that South-South RTAs largely divert trade. The paper also examines possible measures that have helped generate the trade underscored and highlights the challenges that must be addressed in order to deepen EAC integration. It is recommended that the region adopts a legally blinding approach to NTBs, harmonises trade policies and standardises documentation and procedures.

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• Published Dec 27, 2013