Regional Trade Agreement and Agricultural Trade in East African Community

Abstract

According to World Bank statistics, agricultural activities contribute about 33 per cent of the East African Community’s Gross Domestic Product, and up to 80 per cent of the populace depends on agriculture directly and indirectly for food,  employment and income, while about 40 million people in EAC suffer from hunger. Intra-EAC trade is very low, that is, at 9 per cent of the total regional trade, but it is on upward trend. Agricultural trade accounts for over 40 per cent of the intra-EAC trade. This study investigated the effect of EAC regional trade agreement on the regions agricultural trade by analyzing the degree of trade creation and diversion effects. Several Augmented gravity models were estimated using the Pseudo Poisson Maximum Likelihood (PPML) Approach. Panel data from UNCOMTRADE, International Financial Statistics and World Development Indicators for the period 2000 – 2012 on the five EAC members and other 77 trade partners were used. The empirical findings showed mixed results for the different EAC member states. EAC regionalism had no significant effect on agricultural exports of Burundi, Rwanda and Uganda, while Kenya and Tanzania had reported significant effect of regionalism on their agricultural exports. This study concluded that EAC regional trade agreement has a potential of promoting EAC regional agricultural trade.

Keywords: Regional Trade Agreement, Agricultural Trade, East African Community, Gravity Model, Pseudo Poisson Maximum Likelihood, Kenya, Uganda, Tanzania, Rwanda, Burundi