Economic Geography and the Implications of a Free Trade Area within SADC

This study investigates the impact of a free trade area (FTA) on industrial distribution within the Southern African Development Community (SADC). As such the study is grounded in new theories of international trade analysing the impact of trade agreements on countries of different sizes. SADC represents a consortium of countries of radically different size, and further trade integration has given rise to concern of polarisation of industry to the larger countries. The study applies existing international experience and theory to the SADC scenario. An analysis of industrial location Gini coefficients is used to measure distribution of industry in the region with regard to external economies. Coefficients are calculated for the industries of five SADC countries and again for South African provinces, which are then compared to US coefficients. Thus the analysis takes three parts. Firstly, Gini coefficients are calculated for industries from the five SADC countries, South Africa, Zimbabwe, Mauritius, Malawi and Botswana over a fourteen year time period (1985 - 1999). Secondly, the SADC situation is compared to the present extent of localisation of South African industries. Lastly, a trend path is inferred from localisation experience in the USA over the last century. Using the above analyses, two scenarios are established. The first scenario uses the South African experience as a basis of completed integration within a Southern African setting. It is found that in the short term there is likely to be polarisation of industry towards the core. The following industries are most likely to be affected by agglomeration forces, apparel, textiles, furniture and fixtures and electrical machinery. However, as transport costs decrease further with reductions in non-tariff barriers, the pull of the low wage periphery will eventually dominate the initial centripetal forces. Thus, the Krugman and Venables (1995) U-shaped pattern of localisation occurs. The second scenario envisages that SADC is already at an advanced stage of the U-shaped cycle, where agglomeration forces are presently near their height. This would indicate a lower value of polarisation towards the core. Both scenarios lead to the conclusion that the cycle will result in a net gain of manufacturing to the periphery. This is because dispersion forces will affect a larger base of manufacturing than will be influenced by the pull to the core. In order for the peripheral countries to gain, it is thus imperative that member countries are locked into the agreement and that integration goes 'all the way'. It is not sufficient for tariffs to be reduced in isolation. Other transport costs (i.e. NTBs) need to be reduced as rapidly as possible, for it is at intermediate levels of transport costs that industrial agglomeration towards the core is likely to take place.