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African Regional Agreements: Their Impact on Trade With or Without Currency Unions

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Author Info

  • Céline CARRERE

    ()
    (Centre d'Etudes et de Recherches sur le Développement International)

Abstract

The aim of this paper is (i) to assess the impact of regional agreements on members’ trade in Sub-Saharan 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 Hausman-Taylor (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.

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File URL: http://publi.cerdi.org/ed/2003/2003.11.pdf
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Bibliographic Info

Paper provided by CERDI in its series Working Papers with number 200311.

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Length: 40
Date of creation: 2003
Date of revision:
Publication status: Published in Journal of African Economies, 2004, pages 199-239
Handle: RePEc:cdi:wpaper:424

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Related research

Keywords: panel data; Gravity equation; currency union; Regional Agreements; Sub-Saharan Africa;

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Cited by:
  1. George S. Tavlas, 2008. "The Benefits and Costs of Monetary Union in Southern Africa: A Critical Survey of the Literature," Working Papers 70, Bank of Greece.
  2. Bedassa Tadesse & Bichaka Fayissa, 2008. "The impact of African growth and opportunity act (Agoa) on U.S. imports from Sub-Saharan Africa (SSA)," Journal of International Development, John Wiley & Sons, Ltd., vol. 20(7), pages 920-941.
  3. Yongzheng Yang & Sanjeev Gupta, 2005. "Regional Trade Arrangements in Africa," IMF Working Papers 05/36, International Monetary Fund.
  4. Afesorgbor, Sylvanus Kwaku & van Bergeijk, Peter A.G., 2011. "Multi-membership and effectiveness of regional trade agreements in Western and Southern Africa: a comparative study of ECOWAS and SADC," Proceedings of the German Development Economics Conference, Berlin 2011 1, Verein für Socialpolitik, Research Committee Development Economics.

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