African Regional Agreements: Impact on Trade with or without Currency Unions

Abstract

The aim of this paper is (i) to assess the impact of regional agreements on members' trade in SubSaharan Africa (intra-regional trade as well as trade with the rest of the world), controlling for the other traditional determinants, including geography and transport costs and (ii) to compare the respective effect of the preferential trade agreements and the monetary unions. Considering the period 1962-1996, we first assess the average impact of each regional agreement on their implementation period and second we show how these impacts have evolved. An "augmented" gravity model is designed, relying on a transport cost function, in which specific dummies allow trade creation and trade diversion effects to be separated. The model is estimated in panel with bilateral specific effects, to isolate the non-observable characteristics of each pair of countries, and according to the HausmanTaylor (1981) method, which takes into account a possible endogeneity of some explanatory variables. During their implementation, the African regional trade agreements have generated a significant increase in trade between members, although initially often through trade diversion. In the two agreements of the CFA franc zone, the currency unions have largely reinforced the positive effect of the corresponding preferential trade agreements on intra-regional trade, while dampening their trade diversion effect. Actually, currency unions rather had a trade creation effect (all the more important as the international monetary environment has been more unstable), whereas preferential trade agreements resulted in important trade diversion.

The impact of trade facilitation factors on South Africa's exports to a selection of African countries

“…However, it omits a significant amount of unexplained variation in trade (Head, 2003). As a consequence, many works (including Rose, 2001;Frankel & Rose, 2002;Glick & Rose, 2002;Rose & Engel, 2002;Wilson, 2002Carrere, 2004;Njinkeu et al, 2008) 'augmented' the traditional gravity model. Traditional variables for augmentation generally include income per capita, adjacency, common language or colonial ties, border effects and membership of regional integration arrangements (Head, 2003).…”

Anchoring to the Euro (and Grouped Together)? The Case of African Countries

“…27 The low figures for intra-trade in CFA monetary unions seem to go against empirical findings that currency unions have a large positive effect on international trade (see, e.g., Rose, 2000). However, Carrère (2004) and Masson and Pattillo (2004b) note that trade within CFA monetary unions are around three times higher than trade between African countries with own currencies.…”

Regional Economic Integration and Exports Performance in the COMESA Region (1980-2012)

“…Some studies have found a positive correlation between regional economic integration and exports performance (Ajayi, 2005;Carrère, 2004;Musila, 2005 Carrère (2004) used the Hausman-Taylor (1981) approach and showed that African regional trade agreements generated significant exports growth between member countries. For the particular case of the Franc zone, the study revealed that monetary unions (UEMOA and CEMAC) had largely reinforced the positive effect of the preferential trade agreements on intra-regional exports.…”