The effect of COMESA and the EAC on trade creation and diversion, export diversification, and growth of Uganda's economy
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This dissertation deals with the effects of COMESA and the EAC regional integration arrangements on the Ugandan economy with respect to trade creation and trade diversion, export diversification into non traditional exports and economic vulnerability, and economic growth and welfare. The continued focus on COMESA and THE EAC in recent years is because, firstly, there is neither clarity nor agreement on the particular benefits of the regional integration. Secondly, a significant amount of research has been done at a regional level but with less attention to specific country effects. Thirdly, limited research has been undertaken to determine the extent to which integration aid export diversification and an economy’s resilience, and the economic growth of an economy in general. This research explores these issues using the gravity theory and data from UN COMTRADE, UBOS, IMF, and World Economic Outlook for over the period 1981- 2010. Results reveal that THE EAC was trade creating and had more potential compared to COMESA which was trade diverting and with less trade potential. Results further show that not only was there diversification, but there was also reduced vulnerability, both with a positive effect on the growth of the economy. Study results further show a positive overall effect of COMESA and the EAC integration on growth and welfare on the Ugandan economy growth through higher GDP, although debt and trade, largely in deficit, were deterrent factors. Gross domestic investment and foreign direct investment had mixed effects on economic growth. The key recommendations from the study are that Uganda should put more emphasis on trade facilitation and trade infrastructure such as roads and railways to lower trade costs and boost trade in the long-run is addressed, and adding value on what Uganda produces and to diversify the economy by investing in various sectors including manufactures, to reduce the economy’s vulnerability to economic shocks. Additionally, Uganda needs to address the issues of high debt levels, trade imbalances and low domestic investments that are hampering her development efforts.