Abstract
This study empirically examines the relationship between infrastructure stock and bilateral trade flows using a panel of 11 countries in East Africa for the period 2000 to 2018. Infrastructure augmented gravity model was estimated using total bilateral exports for the countries in East Africa. Infrastructure was disaggregated into transport and information and communications technology (ICT) infrastructures. Two institutional variables, control of corruption index and regulatory quality, were incorporated in the model. By employing Poisson Pseudo Maximum Likelihood (PPML) estimator, the results confirm that both ICT and transport infrastructures and quality institutions positively impact on the volumes of total bilateral exports in East Africa. However, ICT infrastructure has a greater impact on trade flows compared to transport infrastructure. Therefore, more resources should be channelled towards increasing the stock of ICT infrastructure to propel trade and regional integration in East Africa.
Highlights
The successful participation of countries in international trade is determined by a number of factors other than the level of tariffs and other quantitative trade restrictions
The results reveal that high foreign direct investments (FDI) inflows discourage trade within the East African region
To establish the relationship between infrastructure development and bilateral exports in the East Africa region, the study estimated a gravity model augmented for infrastructure using a panel of 11 countries from 2000 to 2018
Summary
The successful participation of countries in international trade is determined by a number of factors other than the level of tariffs and other quantitative trade restrictions. These other factors include the quantity and quality of the existing infrastructure. Various kinds of infrastructure facilitate international trade; hard infrastructure is essential for trade between a country and the rest of the world. They include roads, rail lines, ports, and airports. The quality of infrastructure in a country determines costs and volume of international trade. Since various sectors consume infrastructure services differently, infrastructure quality affects opportunity cost and specialization in international trade (World Trade Organization, 2004)
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