Moving to autarky, trade creation and home market effect: an exhaustive analysis of regional trade agreements in Africa

ABSTRACT

This article analyses the effects of Regional Trade Agreements (RTAs) on bilateral trade in Africa. A structural gravity equation is estimated over the period 1955–2014. The overall effect of RTAs on African trade is strong, but depending on the nature of the RTAs, there is a decreasing impact over time. While Economic Integration Agreements (EIAs) still favour trade in Africa, there was no trade creation coming from Free Trade Agreements between 1990 and 2014. However, the provisions of RTAs do not have a negative impact on trade: agreements that include behind-the-border policies do not significantly deter bilateral trade. To explain the declining impact of RTAs, we look at their redistributive impact between members states. There is no evidence that large countries disproportionally export diversified goods due to RTAs (no ‘home effect’). Countries with a good international network (‘hub effect’) benefited more than other countries of RTAs between 1955 and 1990 but this is however less true on the most recent period (1990–2014).

KEYWORDS:

• Trade diversion
• HME
• hub effect
• ECOWAS
• COMESA

JEL CLASSIFICATION:

• F15
• F13

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

¹ The Southern African Development Community (SADC).

² The Common Market for Eastern and Southern Africa (COMESA) and the East African Community (EAC).

³ The Economic Community of West African States (ECOWAS).

⁴ The West African Economic and Monetary Union (WAEMU) and the Economic and Monetary Community of Central Africa (CEMAC). See the so-called "spaghetti bowl" in Figure A1.

⁵ Bouet, Laborde Debucquet, and Martimort (2014) characterize how informational asymmetries explain behind-the-border policies and inefficient trade agreements.

⁶ From an econometric point of view, there are also arguments in the literature for the rejection of a random-effects gravity model (see Egger 2000). Furthermore, models with fixed effects take into account the multilateral frictions of trade that matter to explain bilateral exports (see Fally 2015).

⁷ The first Generalized System of Preferences were non-reciprocal schemes implemented by the European Economic Community and Japan in 1971 and by the USA in 1976, i.e. only a few decades after the wave of independence, to facilitate LDC access to markets of rich countries. See Candau and Jean (2009) for a detailed analysis on the utilisation of these trade preferences in Africa.

⁸ see Santos Silva and Tenreyro (2006) for detailed explanations and more recently Fally (2015, Proposition 1) which demonstrates that the estimated fixed effects with PPML are perfectly consistent with the multilateral resistances of the theoretical model.

⁹ According to the meta-analysis of Disdier and Head (2008) the mean coefficient is −0.9.

¹⁰ Santos Silva and Tenreyro (2006) find an elasticity around −0.7 with PPML and an elasticity twice as large with OLS.

¹¹ Cipollina and Salvatici (2010) find in their meta-analysis that the mean coefficient for NAFTA is equal to 0.90 while Head and Mayer (2015) find a coefficient equals to 0.36 for the EU.

¹² We undertake here a very brief presentation of the model, the reader interested by the details will find a complete presentation in Costinot et al. (2018) and Mayer, Vicard, and Zignago (Forthcoming):

¹³ Sachs and Warner (1997) and Subramanian and Tamirisa (2001) consider the marginalization of Africa as a consequence of a lack of trade integration while Foroutan and Prichett (1993) and Rodrik (1998) view this marginalization as a consequence of their low-income levels.

¹⁴ Authors’ calculation from Comtrade.

¹⁵ For instance to assess the impact of the recent Tripartite Free Trade Area agreement which has a large geographical coverage, including 26 African countries.