Revisiting the effect of regional integration on African trade: evidence from meta-analysis and gravity model

ABSTRACT

Two main shortcomings flaw the estimation of gravity model in previous studies that examined the trade-creating effects of African Regional Trade Agreements (RTAs). First, these studies fail to account for the multilateral resistance term. This omission makes the estimates from standard gravity model bias and inconsistent. Second, there is a significant proportion of zero trade flows, however, these studies also fail to account for them properly. They use either the Tobit model or replace zero flows with arbitrary small values. Apart from these problems, they also exhibit considerable heterogeneity in the RTA effects on trade. In this paper, a meta-analysis of previous empirical studies is conducted to derive a combined effect size and also to explain the heterogeneity. In addition, I use the gravity model to compare the trade-creating effect of the main African RTAs. Using the gravity model, I compare the estimation methods of previous studies to the Poisson pseudo-maximum-likelihood estimator that tackles the zero flows. From the meta-analysis, I find a general positive effect of African RTAs of about 27%–32%. A comparative assessment of the RTAs using gravity model shows a striking heterogeneity.

KEYWORDS:

• Africa
• regional integration
• regional trade
• meta-analysis
• gravity model

JEL CODES:

• C33
• F15
• O55

Acknowledgements

I thank Martin Paldam, Philipp Schröder, Peter van Bergeijk, the editor, two anonymous referees and all participants at both the African economic conference (2013), Johannesburg, and International Network for Economic Research conference (2014), Loughborough, UK, for helpful comments and suggestions. I thank the Tuborg Foundation for generous financial support. All remaining errors are of course my own.

Disclosure statement

No potential conflict of interest was reported by the author.

Notes

1. I use regional economic blocs and RTAs interchangeably. African RTAs are referred to as community or regional economic blocs and their objectives go beyond simply trade liberalization. See Table B2 for description of the regional blocs and their main objectives.

2. The search for empirical studies for the meta-analysis was last updated on 15 December 2015. I rely extensively on Google Scholar to search for empirical papers on African RTAs, using the keywords RTA, trade, Africa and gravity and then augment the list using a snowballing technique by looking at the references of the studies in case the search engine did not find them all.

3. These RTAs are perceived as the main building block for continental integration (Teshome, 1998). The RTAs include the Economic Community of West African States (ECOWAS) in Western Africa, Southern African Development Community (SADC) in Southern Africa, the Arab Maghreb Union (AMU) in Northern Africa, the Economic Community of Central African States (ECCAS) in Central Africa and the Common Market for Eastern and Southern Africa (COMESA) in Eastern and Southern Africa. These RTAs span and represent all the regions on the continent.

4. See Appendix 1 for the computation of Q-statistc and I-Square index.