Impact of East African Community Integration on Trade: Gravity Model Approach

Journal Title: Journal of Economics, Finance and Management Studies - Year 2021, Vol 4, Issue 11

Abstract

East African community (EAC) is a regional economic bloc established to foster economic corporation between Kenya, Rwanda, Burundi, Uganda and Tanzania. Using gravity model the study explores the short run and long run effect of East African community (EAC) on trade using parametric, random effect and fixed effect estimation techniques. Secondly, the study investigates whether formation of EAC led to trade creation or trade diversion in the long run among the member countries of EAC. Lastly, the study establishes the effect of entry of Burundi and Rwanda to the economic bloc of EAC on trade. The study used panel data obtained from the five countries of EAC for the period 1985 to 2019. Breausch Pagan LM test for restrictions in the parametric model and Hausman test for endogeinity in the gravity model found out that fixed effect estimation technique produced accurate and plausible results than parametric and random effect estimation techniques. The empirical results of fixed effect model established that trade across EAC member countries rose by 1.6% in the short run while random effect and parametric models recorded 3.6% increase in trade in the short run. This effect was insignificant meaning that trade between EAC member countries did not expand considerably in the short run. In the long run, fixed effect indicate that EAC increased trade by 24.2% while random effect and parametric model each show that EAC increased trade by 16%. The coefficients are statistically significant at 5% ceteris paribus. Secondly, economic corporation of EAC led to trade creation in Burundi, Kenya, Rwanda and Uganda by 41.6%, 12.2%, 33.9% and 30.1% respectively and trade diversion by 4.2% in Tanzania. Thirdly, entry of Burundi and Rwanda to EAC increased trade of EAC countries by 19.6%. The coefficient is statistically significant at 5% level. The results of random effect and parametric model each indicate a growth in trade by 19.1%. The results of parametric, random effect and fixed effect estimation techniques are all consistent. Lastly, the study established that countries in EAC ought to foster greater growth in GDP, to encourage and strengthen use of common language and to reduce cross border restrictions in order to realize more growth in trade.

Authors and Affiliations

Kiptum George Kosgei

Keywords

Related Articles

Academic Leadership and its Role in Improving University Performance at Imam University College

The study aims to identify academic leadership and its role in improving university performance at Imam University College, as well as to diagnose the level of academic leadership practices at Imam University College, th...

Development of Small Business and Private Entrepreneurship Action Strategy: Results and Prospects

The article discusses the measures for the development of small business and private entrepreneurship, the development of small business and private entrepreneurship in the Republic of Uzbekistan and the further facilit...

Capacity to Serve in Training Activities of Higher Education Institutions, Experimental Assessment at the University of Labor and Social Affairs

Following the research approach and design, we clarified the stated objectives. The article evaluates the current situation and service capacity in training activities of higher education institutions. Presenting survey...

The Influence of Price, Promotion, Product Quality on Purchasing Decisions at "Mie KBR" Jember

Noodles are a favorite food among students, many culinary names for these noodles are called unique names such as devil noodles, dower noodles. This research aims to determine the influence of price, promotion, product q...

The Impact of the Digital Economy on the Hotel Industry

The article analyzes online tourism, its opportunities, the state of development in Uzbekistan. Based on the results of the study, proposals were developed to solve the problems that hinder the development of online tour...

Download PDF file
  • EP ID EP706462
  • DOI 10.47191/jefms/v4-i11-30
  • Views 144
  • Downloads 0

How To Cite

Kiptum George Kosgei (2021). Impact of East African Community Integration on Trade: Gravity Model Approach. Journal of Economics, Finance and Management Studies, 4(11), -. https://europub.co.uk/articles/-A-706462