Economic Integration in East Africa - Trade Effects of the East African Community

Abstract: Regional economic integration is widely spread in Africa, and especially in the eastern region. Three countries in East Africa: Kenya, Uganda and Tanzania, have engaged in various forms of integration since colonial times, and the cooperation has increased further since independence. Today, the East African Community (EAC) has been enlarged, with Rwanda and Burundi as new members, and a customs union is established, the EACU. This study aims to examine the trade effects of the East African Community under the period 1990-2007 with a quantitative study on the cooperation. In addition, a limited literature study is conducted in order to examine the potentials of future integration in the region. The EAC has high intra-regional trade in comparison to other regional agreements in Africa. Since the 1990s, when the cooperation was restarted after more than a decade of non-collaboration, the intra-trade has increased. There are signs of both trade creation (expensive domestic production is replaced by cheaper imports from a member country) and trade diversion (imports from a third country is replaced with more expensive imports from a member country) in different time periods during the 1990s and the beginning of 2000, but since 2002 there is only evidence of trade creation. As the official launch of the new EAC was in 2000, this is a positive development showing the benefits of the cooperation. However, the trade concentration index, a measurement that takes the size of the RIA as well as openness against the rest of the world into account, shows that the countries have started to trade less with each other since 2000. Furthermore, the Kenyan dominance is shown to be pressing the cooperation, which is troublesome since this dominance was one of the main reasons for the breakup of the first EAC in 1977. All findings agree with previous studies on the EAC although different methods have been used. Previous studies on trade effects in developing countries in general find that integration is negative for the participating countries and that the increased trade is due to trade diversion and not trade creation. These results have made successful regional integration seem like an impossible task in developing countries, but the results from this study cannot confirm this. Although the EAC has some problems that it must overcome in order to fulfil its ultimate goal of forming a political federation, the region as a whole will most likely benefit from the cooperation.