Trading in Clusters and the Future of Small-Scale Trade in the Borderlands of the Great Lakes Region of Africa

This paper presents a coping strategy that small-scale cross-border traders adopted in response to the shock of the COVID-19 pandemic and examines its impact. Using a cross-sectional data set of 1,159 traders from the borderlands of the Democratic Republic of Congo and Rwanda, the paper assesses the impact of adopting the Cluster Trading Approach on trade outcomes, household income and poverty reduction. When applying a local average treatment effect approach, the findings reveal that adoption of the CTA causes at least 21 and 31 percentage point increases in traders' turnover and profit respectively. The household income analysis and poverty decomposition highlight an increase in income, even within the depth and severity of poverty. Thus, although access to capital is important for small-scale cross-border traders joining a cluster according to the literature, the results show that the level of capital is less important for income increase once there. As the results are robust to competing explanations and heterogeneity of the sample, the paper concludes that the Cluster Trading Approach is a poverty-reducing strategy and discusses the challenges for its sustainability.