Performance of Intra-COMESA Trade Integration: A comparative Study with ASEAN’s Trade Integration

Ebaidalla M. Ebaidalla and Abdelrahim. A. M. Yahia

University of Kassala, Sudan

Introduction MotivationsQuestionsObjectivesImportance Methodology and DataEmpirical ResultsResults SummaryPolicy Implications

Regional integration (RI) has been considered as one of the prominent strategies for development among countries and regions.

RI promotes economic growth and industrialization process through fostering intra-regional trade, infrastructure and investment.

Moreover, regional trade cooperation between countries is regarded as a key strategy to confront the challenges of globalization.

The history of regional cooperation involves a number of successful regional trade schemes in developed and developing regions, e.g. the Association of Southeast Asian Nations (ASEAN).

The COMESA integration has launched many trade arrangements including (FTA in 2000, custom union in 2009 and further aspiration towards common market and economic community).

How much trade could be achieved among COMESA members if their trade elasticity with respect to economic and geographic variables (economic size, distance, common border, language, colony links) were similar to those achieved in intra-ASEAN trade?

What is the nature of gap between actual trade and potential regional trade of COMESA member states?

Investigating the performance of intra-COMESA trade on the basis of success of ASEAN integration.

This would be useful to asses the prospect of COMESA for further trade integration and to uncover some policies that can help African policy makers to develop the process of the integration so as to achieve more economic cooperation.

Unlike the previous studies on measuring trade potential, this study use “out-of-sample” approach, which did not used before to analyze the potential intra-trade of COMESA. To our knowledge this method of projecting potential trade is only used by Patore et al. (2009) to compare the parallel integration process of EU with the Mediterranean countries and Central and Eastern European countries.

The analysis proceeds via two stepsEstimate the coefficients of a gravity

model of intra-ASEAN trade.Apply them into equations of trade

between the selected sample of COMESA members to calculate the potential trade relative to intra-ASEAN trade.

* The success of intra-COMESA trade integration is measured by the ratio of potential to actual trade

Gravity Model Specification

• i indicates the exporter countries, j are the trading partners and t is period under consideration, i.e. 1998-2010

•Xij is the trade variable between country i and country j;• POPi and POPj are the populations•GDPi and GDPj are gross domestic product of country i and j•Dij is the geographical distance in kilometers between the capital city of country i and of country j; •CL is a dummy variable to capture common language or colonial history, •CB is a dummy taking a value of one if the trade partners share a common land borders or sea borders, and zero otherwise; finally,

Data Sources The trade data for ASEAN members are

extracted from IMF’ Direction of International Trade statistics

The data for COMESA are collected from COMSTAT Database website

The data about GDP and population size are collected from World Bank’ Development Indicators.

Information about common language, ex-colony history and common border were sourced from the CIA World Fact-book.

Information about distance is sourced from

http://www.distancefromto.net/countries.php

Estimation Methodology The gravity model is estimated via the panel data methods namely, pooled, fixed effects (FE) and random effects (RE) models. Hausman test statistic is applied to check further whether the fixed effects model is more appropriate than the random effects model

The dependent Variable is the total trade

Variable2

Pooled3

FEM4

REM5

FEM6

REM

Constant -50.26***(-12.36)

2.20(0.06)

-32.67***(-3.63)

-80.64(-0.58)

-18.12***(-4.07)

LOG(GDPI) 1.32***(10.16)

-2.72***(-3.03)

0.94***(4.29)

-2.65**(-2.94)

0.09*(1.76)

LOG(POPI) 0.36***(3.34)

3.96(0.75)

0.08***(2.88)

LOG(GDPJ) 1.49***(11.76)

3.40***(3.88)

1.46***(6.77)

3.42***(3.87)

0.17***(5.73)

LOG(POPJ) 0.14(1.32)

0.86(0.16)

0.03(0.48)

LOG(DIS) -1.29***(-3.92)

-1.12(-1.19)

-1.41(-1.47)

CL -0.21(-0.42)

-0.23(-0.16)

-0.38(-0.27)

CB 2.51**(5.36)

2.12(1.61)

2.59*(1.93)

R2 0.64 0.78 0.58 0.78 0.61F 94.14 34.74 24.05 33.70 18.22

Hausman Test 31.95 (0.0000) 25.42 (0.0000)No of Observation 728 728 728 728 728

No of Groups 56 56 56 56 56Obs per group 7 7 7 7 7

Estimating Potential Trade of COMESA Integration

To project the potential trade we apply the coefficients of gravity model in column 6 to a sample of eight COMESA countries, over the period 2004-2011. The ratios of potential to actual trade between each of eight COMESA members and other partner are presented in Figure 1 through 8 in Annex V.

Figure 1: Egypt-COMESA: Potential Trade/Actual Trade (2004-2011)

Figure 2: Ethiopia- COMESA: Potential Trade/Actual Trade (2004-2011)

Figure 3: Kenya-COMESA: Potential Trade/Actual Trade (2004-2011)

Figure 4: Malawi-COMESA: Potential Trade/Actual Trade (2004-2011)

Figure 5: Mauritius-COMESA: Potential Trade/Actual Trade (2004-2011)

Figure 6: Uganda-COMESA: Potential Trade/Actual Trade (2004-2011)

Figure 7: Zambia-COMESA: Potential Trade/Actual Trade (2004-2011)

Figure 8: Zimbabwe-COMESA: Potential Trade/Actual Trade (2004-2011)

Actual trade between most of the trading partners is far from the estimated potential trade level.

The ratio of potential to actual trade has a downward trend for most of country pairs, suggesting a decreasing gap between actual and potential trade over time.

Actual trade for some relatively developed courtiers, like Egypt and Kenya is close to its potential.

Kenya-Uganda pair is found as the most successful bilateral trade integration among the COMESA members.

Policy makers in member countries should adopt effective trade promotion measures to achieve trade potential level.

The downward trend of potential/actual trade ratio means a progress toward full trade cooperation, which needs further actions to speed the economic and trade integration process.

Exports diversification should be at the top of policy agenda for COMESA countries.

Member countries need to pay special attention to industrialization so as to enhance trade integration, since intensive-industrialization is the major reason behind the success of ASEAN integration. Promoting transport and communication infrastructure networks between the members.Further efforts should be exerted to attract Foreign Direct Investment (FDI) as well as to promote the trade sectors.Adoption of comprehensive trade liberalization measures ranging from removing tariff barriers to improve customs ports procedures at the borders.

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