Effect of transit road quality on trade costs in East Africa

This paper provides an empirical estimate of the effect that upgrading of roads along the two main transit routes in the East African Community (EAC) had on the total bilateral trade costs facing manufacturing industries. The transit routes are the Northern Corridor and the Central Corridor, which link the capital cities of Burundi, Kenya, Rwanda, Tanzania, and Uganda to the seaports of Mombasa in Kenya and Dar es Salaam in Tanzania. This paper exploits information on the condition of roads along these routes, which is published by government and donor agencies. The reports pertain to road projects that were completed in the period 2004–2010, and indicate that the share of paved roads in good condition along the Corridors doubled between 2003 and 2010. This study estimates that the increase in the quality of transit roads lowered both domestic and cross‐border trade costs, and that the latter effect is larger than the former. The study also finds that the increase in trade volumes due to better transit roads is attributable to industries producing output with above median weight. These industries dominate the EAC manufacturing sector, suggesting that a compositional change in cross‐border trade flows arising from better transit roads is unlikely.