How the African Continental Free Trade Area impacts firms’ export survival: Some lessons from Kenya

Abstract

The potential benefits of the African Continental Free Trade Area (AfCFTA) have taken center stage in recent policy and scholarly debates. We contribute to this discussion by drawing insights from our assessment of the current levels of export survival across the following agreements: the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), and the overall economic integration agreement (EIA). Using monthly firm-product-destination customs transaction data from Kenya for the period January 2006 to December 2017, we find that the average duration of trading is longer under an agreement than when there is no agreement in place by 1.12 months. The mean duration of exporting under EAC exceeds that of COMESA by 1.47 months. The probit regression results with random effects reveal that trade agreements reduce the hazard rate for exports. However, the effect differs depending on the agreement’s depth and extent: The effect is negative for the EAC and positive for the COMESA. We also find that the ‘timing’ effect differs depending on the nature of the agreement. Overall, while the AfCFTA may expand market access, it might not guarantee low failure rates for exporters.