The Impact of the Economic Partnership Agreement on East African Community Trade with European Union: A Gravity Model Approach

Geoffrey Mwambe ,Zawadi Ally ,Don Prasad

doi:10.7176/jesd/10-10-22

Abstract

This paper analyzes the impact of the Framework Economic Partnership Agreement (FEPA) on East African Community (EAC) trade with European Union (EU) for the period from 2000 to 2018. The analysis was carried out to estimate the impact of the interim EPA on EAC trade with EU using Gravity model approach. The variables employed in the study included trade flow of goods (exports and imports) between the two trade blocs, mass variables (real GDP growth, and per capita GDP) and dummy variables for capturing FEPA and time. The findings show that generally interim EPA did not benefit EAC economies and suggest potential for trade diversion. Burundi trade was adversely affected by FEPA while Kenya and Tanzania exports were positively impacted. The results may be influenced by weak productive capacities in EAC, global financial crisis which reduced global consumption demand, increased intra-EAC trade and trade with COMESA and SADC as well as low supply of goods for EU market. Keywords : Gravity model approach, Economic Partnership Agreement, EAC, EU DOI : 10.7176/JESD/10-10-22 Publication date :May 31 st 2019

Highlights

Growth in world trade is in turn the result of both technological developments and concerted efforts to reduce trade barriers (IMF, 2001)
Openness to trade has been an important element in the economic success of countries in East Asia, where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years, with an impressive average growth rate of 8 percent per year (Rispens, 2009)
The model controlled for GDP of both EU and EAC which were found to have a positive impact on imports

Summary

Introduction

Growth in world trade is in turn the result of both technological developments and concerted efforts to reduce trade barriers (IMF, 2001). Openness to trade (and foreign direct investment) has been an important element in the economic success of countries in East Asia, where the average import tariff has fallen from 30 percent to 10 percent over the past 20 years, with an impressive average growth rate of 8 percent per year (Rispens, 2009). Asserts that the miraculous of growth and economic development of the East Asian countries is the natural result of their liberal trade, outward-looking and market oriented policies. In small open economies like the EAC countries, external trade is an integral component of the nation’s growth and development agenda. The promotion of foreign trade has been central to all EAC government policies. At the end of 2007, the EAC countries comprising Burundi, Kenya, Rwanda, Tanzania and Uganda, entered into an inter-regional interim or the framework for an economic partnership agreement (FEPA) with the European Union counterparts

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