Abstract
M.Com. (Economics)
The purpose of this study is to examine the impact of economic integration on trade growth in the East African Community (EAC). The EAC created in June 2001, is the regional umbrella organisation overseeing a pan-nation, an inter-governmental trade bloc for the Republics of Kenya, Uganda, Tanzania, Rwanda and Burundi. The objectives of the organisation are to create an environment where free movement of people, goods and labour can occur, spurring economic growth and well-being of the region’s citizens.
The concept of economic integration emerged post the Second World War (WWII), as an avenue for creating a protected large free-trade area in which gradually capital movements could be liberalised. It has been adopted in different regions with varying degrees of success. It is in this context that the EAC was examined.
The study uses two models to analyse the impact of economic integration on trade growth; the institutional integration index and the augmented gravity model. The first model is important in the analysis of economic integration in that it provides evidence of the impact that deeper and wider integration has on trade growth. The second model, the augmented gravity model is an “augmentation” of the traditional gravity model with additional variables that cater for the effects of the second, third and fourth stages of integration.
The study applies panel data analysis on a 10 year data set and empirically assesses the impact of economic integration on trade growth. Based on the results of the two models, it is found that economic integration does lead to trade growth, however because the EAC has only attained the first stage of integration i.e. Customs union and is currently pursuing the second stage i.e. Common markets, factors that come into play in the latter stages of integration i.e. monetary union and political federation, have no significant impact on trade.