East African customs union and economic growth in Uganda

Abstract

This study empirically investigates the effect of the East African Community (EAC) Customs Union on Uganda’s economic growth, guided by the Gravity Model of Trade and the Solow Growth Model. Using annual time-series data from 1994 to 2024, the analysis employed a twostage approach. First, a Vector Error Correction Model (VECM) was used to examine the longrun and short-run effect of the Customs Union on Uganda’s trade performance. Second, a separate VECM estimated the relationship between intra-EAC trade and Uganda’s economic growth. Key variables included logged trade volume, real GDP figures for Uganda and its partners, and a dummy variable for the post-2005 Customs Union period. The models were validated through Johansen cointegration tests, which confirmed stable long-run relationships, and robust diagnostic checks for serial correlation, heteroskedasticity, and normality. The findings reveal a critical paradox: while intra-EAC trade has a positive and statistically significant long-run effect on Uganda’s economic growth, the EAC Customs Union policy itself shows no significant independent impact on driving that trade. This indicates that Uganda’s trade growth is more attributable to the general economic expansion of the region than to the tariff liberalization of the Customs Union, with structural constraints like a narrow export base and persistent non-tariff barriers muting the policy's effect. Consequently, the study concludes that the benefits of regional integration are not automatic. It recommends that Ugandan policymakers move beyond tariff liberalization to urgently implement targeted measures including the elimination of non-tariff barriers, investment in trade infrastructure, and support for export diversification to fully harness the growth potential of intra-EAC trade.