A Cross-sectional Study of EEC Trade with the Association of African Countries

Abstract

EIGHTEEN African countries became associate members of the European Economic Community (EEC) under the treaty of Rome in 1958 and their associate member status was subsequently renewed at the respective Yaounde Conventions in 1963 and 1969. As associate members, the African nations have received tariff preferences for their exports in the EEC market along with economic aid and technical assistance, while the EEC has generally pressed successfully for preferential treatment of its exports in associate country markets.1 The present study employs a variant of the cross-sectional trade flow model developed by Linnemann (1966) to test for the existence of a statistically significant effect of the association agreement on trade between the African Associate countries (AAC) and the EEC. By using dummy variables to represent the trade preference between EEC and AAC members and by calculating cross-sectional equations for African trade with the developed countries for each year of the period 1958-71, the study is able to trace the cumulative effect of the agreement on the exports of both AAC and EEC members. For each year of the association period, the cross-section regression results are in turn used to estimate the dollar value of gross trade creation (GTC) for both the AAC and the EEC; using GTC as defined by Balassa (1967) as the total increase in trade among members of a trading community brought about through economic integration, regardless of whether the additional trade replaces domestic production (trade creation) or whether it replaces nonmember exports (trade diversion).2 The EECAAC agreement actually constitutes a series of custom unions between each of the respective AACs and the EEC as a whole. By using separate equations to cover EEC exports and AAC exports, respectively, the study is able to estimate GTC for the respective groups of countries for each year of the study period.