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An Empirical Evaluation of Trade Potential in Southern African Development Community

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  • Simwaka, Kisu

Abstract

This paper attempts to estimate the trade potential expected from the SADC FTA. Specifically, the study investigates what the Southern African countries stand to gain by way of increases in intra-regional trade if all trade barriers are removed. In order to assess the trade potential compared to its current level, a gravity model has been estimated. Results show that the observed intra-regional trade is lower than its potential. The results suggest that there is trade potential in the sub-region. There is no question that an FTA will enhance the prospects for increasing intra-regional trade. The results are in agreement with findings by Evans (1997) who found that that the FTA is likely to lead to trade creation, and also African Development Bank (1993), whose results found that there is considerable potential for the non-Southern African Customs Union (SACU) countries to switch supply from third countries to South Africa. The results, however, differ with findings by Chauvin (2002) and Cassim (2001) whose results indicated that SADC trade potentials are rather small, especially for South African exports. They also differ with Elbadawi (1997) whose results indicate that SADC did not have a significant effect on trade among its members.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 15894.

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Date of creation: 20 Jun 2010
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Handle: RePEc:pra:mprapa:15894

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Keywords: Trade Potential; Gravity model; SADC;

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  1. Soloaga, Isidro & Alan Wintersb, L., 2001. "Regionalism in the nineties: what effect on trade?," The North American Journal of Economics and Finance, Elsevier, vol. 12(1), pages 1-29, March.
  2. Soloaga, Isidro & Winters, L. Alan, 1999. "How has regionalism in the 1990s affected trade?," Policy Research Working Paper Series 2156, The World Bank.
  3. Yeats, Alexander, 1997. "Does Mercosur's trade performance raise concerns about the effects of regional trade arrangements?," Policy Research Working Paper Series 1729, The World Bank.
  4. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters, in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
  5. Ogunkola, E.O., 1998. "An Empirical Evaluation of Trade Potential in the Economic Community of West African States," Papers 84, African Economic Research Consortium.
  6. Ann E. Harrison & Brian J. Aitken, 1999. "Do Domestic Firms Benefit from Direct Foreign Investment? Evidence from Venezuela," American Economic Review, American Economic Association, vol. 89(3), pages 605-618, June.
  7. Baldwin, Richard E. & Venables, Anthony J., 1995. "Regional economic integration," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 31, pages 1597-1644 Elsevier.
  8. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
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