Trade and Industry

Tuesday, 28 April 2009

Trade Effects of Regional Economic Integration in Africa: The Case of SADC

  • Year: 2009
  • Organisation: Services Sector Development Thematic Working Group; TIPS, BIDPA and UoM
  • Author(s): Mengesha Yayo Negasi
  • Countries and Regions: Southern African Development Community (SADC)

Empirical studies on regional economic integration process in Africa exhibit sluggish progress and there by limited level of intra trade. The existing literatures in Africa, particularly in Southern African regional integration bloc, SADC have neglected effects of regional economic integration dealing with disaggregated data. This study analyzes trade creation and diversion effects of the Southern African Development Community (SADC) using disaggregated data from 2000 to 2007.

The investigation estimates an augmented gravity model using panel data and random effect estimator methods. The results show that the intra -SADC trade is growing in fuel and minerals, and heavy manufacturing sectors while it displays a declining trend in agricultural and light manufacturing sectors. This implies that SADC has displaced trade with the rest of the world in both fuel and minerals, and heavy manufacturing sectors. SADC has served to boost trade significantly among its members rather than with the rest of the world. Countries participating in SADC have moved toward a lower degree of relative openness in these sectors trade with the rest of the world. However, the increasing trend of extra-SADC trade bias over the sample period in both agricultural commodities and light manufacturing sectors means that there has been a negative trade diversion effect. In other words, the value of trade between members and non-members has been increasing for the two sectors. These results seem to suggest that SADC countries retained their openness and outward orientation despite they signed the trade protocol for enhancing intra-SADC trade in agricultural and light manufacturing sectors.