The Effect of Institutions on Trade Flows in East African Community

Abstract

This paperlooks at the effect of institutions on trade flows in East African Community (EAC). More specifically the study seeks to investigate whether institutional quality promotes intra-EAC trade. The analysis uses annual data from the year 2005 to 2014. The study has used panel data analysis of five EAC member countries and their trade partners in the EAC to determine the effect of institutions on intra-EAC trade flows using the augmented gravity model of trade. A random verses fixed effect models were used to estimate the model putting into consideration the time invariant variables. The hausman test has also been used to determine the choice of the model to be estimated. The results showed that institutional variables that are significant, promote trade flows among the partner states. GDP positively and significantly impacted on EAC imports in some of the member states. The language variablepositively and significantly trade flows in Tanzania and Uganda. Policy implications include enhancing policies that are geared towards trade increment and economic growth.