| The purpose of this study is to estimate and analyze the trade-creating and trade-diverting effects of the Preferential Trade Area (PTA) for Eastern and Southern African States. The implications of these effects are then assessed on the long-term development goals and objectives of the member countries, particularly the Common Market for Eastern and Southern Africa (COMESA), PTA's successor. Two approaches are adopted for the purpose. The first approach utilizes Willmore's (1976) modified version of Balassa's (1967) concept of ex post income elasticity of import demand. The second approach uses the residual imputation model, which is attributed to Verdoorn and Bochove (1972). However, because of its popularity, the emphasis in this study is given to Balassa's method. The study uses aggregate data to compare the elasticities between the pre-and post-integration periods of the PTA.; The study finds little or no trade creation among the PTA member countries. In other words, after integration, there has not been a significant shift in the product origin from a high-cost domestic source to a lower-cost partner source. This result is plausible with the theory that postulates that the trade-creating effects of regional economic integration among developing countries are relatively small. The argument is that trade creation is more likely when a high proportion of the external trade is undertaken with the prospective partners. In developing countries, however, the initial position is such that there is very little trade among the members while the bulk of their trade is with nonmembers. In addition, the nature of the commodity composition in these countries, which is mainly primary products, is not favorable for trade creation, at least in the short run. The study also finds no indication of trade-diverting effects. In other words, after integration, there has not been a shift in production from a low-cost non-partner to a high-cost partner sources. Indeed, the result shows that there has been a substantial move from high-cost partners to low-cost non-partner countries, that is, there has been an external trade creation. This can be explained by the fact that the imports of the PTA countries consist chiefly of intermediate products and finished manufactures, which many of these countries either do not produce at all or produce only to a limited extent. That is, the nature of the commodities imported is such that it would be difficult to abandon these imports from foreign sources, probably in the short run. Another possible explanation could be the fact that the PTA has not yet adopted a common external tariff (CET) on imports from nonmembers. The study suggests that regional economic integration should be seen as a complementary aspect of the overall development strategy and should aim at transforming the structure of production and trade of the PTA/COMESA economies. |
