The Determinants of Trade Costs in the East African Community

Abstract

This paper assesses the East African Community’s (EAC) effectiveness in integrating member countries by lowering total bilateral trade costs. First, information is provided on the size and distribution of bilateral trade costs among 16 manufacturing industries over the period 1990~2012 for a sample comprising five EAC countries and 87 of their trade partners. The estimates indicate that it costs on average three times more for an EAC country to trade manufactured goods with another EAC country than to trade those goods domestically. The estimates also indicate that it costs on average eight times more for an EAC country to trade manufactured goods with a non-EAC country than to trade those goods domestically. This paper then shows the importance of natural and policy-related factors in determining the trade costs.