Regional economic integration and its implications on exports and economic growth in the COMESA region (1980-2010)
Tumwebaze, Karamuriro Henry
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One of the major development challenges facing Africa has been the small and fragmented economies with low incomes and low level of intra-regional trade. In an effort to foster economic growth and promote intra-regional exports, Africa has witnessed renewed momentum for regional integration. This study examined the effect of regional economic integration on exports and economic growth in the COMESA region, using panel data from 1980 to 2010. The first part of the study examined the extent to which the formation of COMESA had affected intra-regional exports. It employed the fixed effects regression, random effects regression and instrumental variables GMM regression to estimate an augmented trade gravity model. The results suggested that the formation of COMESA trading bloc had promoted intra-regional exports, implying intra-COMESA export bias. Comparing pre-COMESA (1980-1993) and post-COMESA (1994-2010) periods, the empirical results indicated that intra-COMESA exports had grown by approximately 35 percent since COMESA was formed. The second part of the study evaluated the extent to which the formation of COMESA had affected economic growth of the member countries. For this purpose, a cross-country growth model was estimated using instrumental variables GMM regression. Contrary to expectation, the study found no evidence to suggest that regional integration had any significant effect on the rate of economic growth of COMESA member countries. The empirical results showed that the most robust determinants of economic growth in the COMESA were the physical capital stock growth, population growth, world GDP growth and the level of openness to international trade. The last part of the study sought to establish the causality between exports and economic growth of COMESA member countries. This study used panel unit root tests, panel cointegration and Granger causality techniques. The findings of the study showed that both export-led growth and growth-led export hypotheses were valid in the COMESA region. Export-led growth hypothesis applied in 68.4 percent of the COMESA member countries; growth-led export hypothesis applied in 42.1 percent of the COMESA member countries; while in 36.8 percent of the COMESA member countries, there appeared bi-directional causality between exports and economic growth. The finding that regional integration had a significant positive effect on intra-COMESA exports suggests that in order to enhance export flows in the region, the process of economic integration should be deepened. An important policy implication that came out from the transport cost and adjacency variables was that investment in transport infrastructure that reduces long distance cost of doing business would have a major impact on deepening integration of COMESA economies. The result that the level of openness to international trade, and not regional integration, had a significant positive effect on the economic growth of COMESA member countries suggests that COMESA member countries should pursue broad trade liberalization rather than just regional integration in order to foster their economic growth. The finding that in most COMESA member countries (68.4 percent), the direction of causation was from exports to GDP growth implies that an export-oriented trade strategy would have some important long-run implications for increases in GDP in the COMESA.