Trade effects of the East Africa Customs Union in Tanzania: Application of a structural gravity model

Abstract

By measuring the effects of forming and joining a regional integration bloc using an augmented structural gravity model, this paper finds that the East African Community (EAC) and EAC Customs Union have significantly enhanced Tanzanian trade into EAC markets. Kenya has continued to be the main trading partner for Tanzania in the EAC markets, and from 2015 onwards the trade deficit with Kenya changed into a surplus, signalling improvement in the balance of trade. Tanzania has also maintained a significant trade balance surplus with the other EAC Partner States. There have, however, been no significant changes in Tanzania’s trade patterns, which have remained primarily inter-industry rather than intra-industry, signalling a lack of structural change and productivity in the economy and suggesting that Tanzania’s trade in EAC markets is not linked with industrialization and transformation. Furthermore, continued trade imbalances, especially with Kenya, threaten a backlash in the long term and are not healthy for the future and sustainability of the EAC integration process.

Trade, GDP value adding activities and income inequality in the East African community

“…Agreeing to waive tariff barriers and selecting the right set of products for each EAC partner to trade can considerably enhance market competitiveness for these countries. Leyaro [96] denoted that the effects which arise from the removal of border measures (tariff barriers to trade) and behind-the-border measures (non-tariff barriers to trade) are based on imperfect competitive trade theory, where firms derive profits from exploiting market dominance, through economies of scale, increased competition, improved technology, and/or greater specialization.…”