AGRICULTURAL TRADE AND REGIONAL INTEGRATION: THE CASE OF COMMON MARKET FOR EASTERN AND SOUTHERN AFRICA (COMESA)

Abstract

Various empirical studies in the past used aggregate trade performance to assess effects of regional integration on agricultural exports. Previous studies revealed their findings by examining few selected agricultural commodities. Besides, existing evidences on the effectiveness of regional integration in promoting intra-regional agricultural trade in Africa is equally mixed. Thus, a comprehensive study that examines the effect of COMESA regional integration on agricultural trade using disaggregated data remains unexplored. This study investigates the effect of regional integration on agricultural exports for COMESA economies. The research employed an augmented gravity model of bilateral trade for the period covering 1997-2018. The empirical evidence is based on panel data analysis and random effects model estimation. The structure and flow of agricultural commodities trade in COMESA is also analyzed using a descriptive approach. Tea, coffee, spices, vegetables, animal and vegetable fats and oils, cereals, and live animals have emerged as the major exported products accounting for nearly 60 percent share of agricultural exports from COMESA countries to the world. The empirical findings show that real GDP of both exporter and importer countries is a robust predictor of agricultural export trade performance in the region. Other significant factors that positively affected intraCOMESA agricultural exports include population of importing country, common border, and common official language. The estimation results also indicate that intra-COMESA agricultural exports have inverse relation with population size of exporter country, exchange rate devaluation, and distance between bilateral trade partners. The predicted coefficient for exchange rate reveals unexpected negative sign. This result is in contrary to the widely held opinion that currency devaluation generates more exports. Also, the empirical evidences indicate that COMESA regional integration has both trade diversion and trade creation effects on agricultural trade. However, the net effect shows existence of trade diversion, which is a little higher than the trade creation coefficient. To mitigate the trade diversion effect observed in the empirical finding, the study recommends strategic interventions by undertaking full implementation of harmonizing trade policies and calling for deeper integration of COMESA. This would be crucial not only to tackle major barriers to trade but also to expand the low level of intra-regional trade in agriculture. Finally, to address the finding related to negative effects of exchange rate devaluations and to promote intra-COMESA agricultural trade, the paper suggests reduction of currency disparities among member states and adoption of common currency regime.