From EAC-6 to EAC 7: potentials and pitfalls of the enlargement of the East African Community, by Binyam Afewerk Demena and Peter A.G. van Bergeijk

Abstract                          

East Africa as a region is increasingly attracting attention, especially in view of its significant achievements since the turn of the Millennium. It has been documented that the region has a remarkable resilience despite tsunami of negative foreign trade and investment shocks of the last decade. Policymakers in the region need to strengthen resilience by diversifying beyond gold, tourism, and traditional cash crops, boosting private sector backed growth and competitiveness, and preparing for competitiveness-led export growth. There is a need to ensure that the benefits of international specialization trickle down not only to strengthen economic growth, but also to create jobs and reduce poverty.

The stylized facts of applied gravity analysis are that regional integration has comparatively speaking progressed well in the EAC, that trade creation by far outweighs trade diversion and that EAC is the most advanced in terms of tariff liberalization. Given this existing body of knowledge, in this working paper, we focus on a relatively under-researched area where important differences exist between EAC member states, namely: the trade impact of the time and costs that firms incur when they comply with documentary requirements and border procedures. The gravity model is estimated using a panel dataset consisting of EAC, SADC, COMESA and their major trading partners for the period 2015 – 2018, applying the Poisson Pseudo Maximum Likelihood (PPML) estimator. Our empirical findings highlight that reducing time and costs for documentary requirements and crossing borders is an important issue within the EAC, especially since streamlining procedures, one stop portals, reducing handling time, as well as the use of common standards that facilitate EAC internal trade flows do not require large financial investments while they do have a high payoff. Considering economic arguments as a basis to form regional entities, our findings consistently stress the need to enhance the efficacy of the various regional trading blocs.

Keywords

East African Community (EAC), Tanzania, Kenya DRC, South Sudan, Uganda, Rwanda, Burundi, gravity, productivity, economic integration.

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