Abstract
M.Phil. (Industrial Policy)
Regional trade agreements have become increasingly important in Sub-Saharan Africa. However, their effects on growth and industrial development are not clear. The aim of this minor dissertation therefore is to investigate the impact of regional integration on economic growth and industrial growth in Zambia. One of the main contributions of the dissertation is that it uses Lucas’s (1988) new endogenous growth model and a modified version of Kaldor's growth laws to formalise the growth and development effect of regional integration. Covering the period from 1980 to 2014, the first part of the study employs the autoregressive distributed lag (ARDL) bounds testing approach to estimate the long-run impact of regional integration on growth using a constructed trade openness index, which is defined as the share of total trade in GDP, as a proxy for regional integration. The trade openness index appears to be a plausible proxy for regional integration in Zambia, since its upward trend in the post-2000 period coincides with the launch of both the Common Market for Eastern and Southern Africa and the Southern African Development Community free trade areas. Within the theoretical framework of the Lucas model, the ARDL results show that regional integration has no long-run effect on output per capita in Zambia. As an alternative theoretical framework, the study tests a modified version of Kaldor’s growth laws, using the vector autoregression (VAR) Granger causality procedure of Toda and Yamamoto (T-Y) to estimate the causal relationship between GDP per capita, manufacturing value added and trade openness. The results show that trade openness has no direct causal effect on output per capita. However, it has a long-run causal effect on manufacturing value added, which has a positive causal effect on GDP per capita. The conclusion of this study therefore is that, while regional integration has no direct causal effect on output per capita in Zambia, it indirectly transmits itself through manufacturing. The main policy implication is that manufacturing is a key sector through which regional integration affects income per capita in Zambia. It follows that, as the country integrates, it should prioritise industrial policy to facilitate growth in manufacturing and address factors that prevent manufacturing from effectively competing in the enlarged markets provided through regional integration. Since the trade openness index used in this dissertation is an imperfect measure of regional integration, the study suggests several areas for future research.