Determinants of Uganda’s regional trade: Uganda’s performance under the East African Community (EAC)

Abstract

The research set out to examine the Determinants of Uganda's regional trade with a special focus on Uganda's Performance under the East African Community (EAC). The study utilized the gravity model which predicts that bilateral trade between two countries is proportional to their respective sizes, measured by their GDP, and inversely proportional to trade costs that increase with distance. Making estimation using Ordinary Least squares, the paper analyses the effect of GDP, Population, common language, membership to EAC, Common colonial ties, membership to extra-regional economic groups, and distance between capitals to examine their effect on trade volume, export volumes, and net exports. Using secondary data from International Trade Centre (ITC) and World Bank databases and using Stata statistical software for analysis, the study revealed that: An increase in the population of a trading country relative to Uganda by 1 person results in a 2.76 percent increase in the volume of trade between the two countries. An increase in the distance of between capital cities by 1% leads to a 2.25% reduction in the volume of trade between Uganda and that partner trading country. An increase in the GDP of a partner trading country relative to Uganda by USD 1 increases the export volumes by 0.6%. An increase in the population of a trading country relative to Uganda by 1 person results in a 1.69 percent increase in the export volume for Uganda. Having common historical colonial ties reduces the export volume by 1.3%. Also, a 1% increase in the distance from Uganda's Capital to that of a trading partner is associated with a 1.76% reduction in the volume of exports. An increase in the population of a trading country relative to Uganda by 1 person results in a 2.6 percent reduction in the net export volume for Uganda. Membership to the EAC reduces the net exports by 1.14%; having a common of cial language reduces the net exports by 0.79% while having common colonial ties reduces the net exports by 2.5%. Ironically, a 1% increase in the distance from Uganda's Capital to that of a trading partner is associated with a 1.6% increase in net exports. As a recommendation, great emphasis should be put on countries without common colonial ties (countries outside of Kenya and Tanzania) for improvement of the Terms of Trade.