COMESA trade potential: a gravity approach

Abstract

The aim of this study is twofold: first, to find out whether COMESA is a building or stumbling bloc; and second, to estimate trade potentials within the COMESA region for COMESA members. In addressing the issue of regionalism, the gravity model can be used to simulate trade potentials corresponding to any regional integration scheme. This study uses a panel data analysis to estimate export flows from 147 exporting countries for a period of 21 years (1980–2001). The equation is estimated using a Tobit model. The coefficients on the observable effects determining bilateral trade, except real effective exchange rate, are as expected and highly significant. COMESA seems to be a building bloc; that is, the bloc liberalized trade more internally than it diverted trade from the rest of the world. These results suggest that COMESA's trade potential within the region is limited. In fact, the results suggest that members of COMESA trading bloc are overtrading within the region. Potentials for more trade exist for Angola and Uganda.

Notes

¹ The twenty members are Angola, Burundi, Comoros, DR Congo, Djibouti, Egypt, Eritrea, Ethiopia, Kenya, Madagascar, Malawi, Mauritius, Namibia, Rwanda, Seychelles, Sudan, Swaziland, Uganda, Zambia and Zimbabwe.

² The nine members which initially joined the FTA are Djibouti, Egypt, Kenya, Madagascar, Malawi, Mauritius, Sudan, Zambia and Zimbabwe.

³ Data sources: GDP and population data obtained from World Development Indicators from World Bank. Bilateral exports data and exchange rate data obtained from IMF DOTS and IFS respectively. Distance, common border and language data obtained from John Haven's international trade data website: http://www.macalester.edu/research/economics/PAGE/HAVEMAN/Trade.Resources/TradeData.html

⁴ Exports for some countries to partners in some or all years may be equal to zero. Very small numbers can be used in the place of zero without loss of generality. Eichegreen and Irverwin (1995) used ln(X_ijt  + 1) as the dependent variable. Sologa and Winters (2001) used a tobit specification.