Trade Creation and Diversion in East Africa: the Effect of Eac on Multilateral Trade Flows

Abstract

East African Community (EAC) is a regional integration that joins Kenya. Tan/an.a, Uganda. Burundi and Rwanda Throughout the period of 2000-2010. the gains of increased intra-EAC trade are unevenly distributed with only Kenya being a net intra-EAC exporter. Although the adoption of EAC Common External Tariff in 200? led to a decline of tariff rates for Kenya and Tanzania, it resulted into a rise in average tariff rate for Uganda. I he study investigated effects of EAC; that is trade creation or trade diversion on multilateral trade Hows of member states using the gravity model. The results suggested that multilateral trade flows in LAC were explained by the standard v ariables of the gravity model before and after the year 2007. GDP positively and significantly impacted on FAC imports, while distance considerably was a barrier to multilateral trade. Evidence showed no existence of trade creation or trade diversion for both periods 2002-2006 and 2007-2010. Policy implications include improvement of transport infrastructures both within EAC and with other trading partners in order to reduce the cost of imports. EAC member countries' governments should continue to enhance policies that arc geared towards economic growth, so that increased GDP will leud to increased multilateral trade flows. xi