Assessing the effect of cross border facilitation measures on trade costs in the East Africa region

Abstract

Successive rounds of multilateral trade negotiations over the years have progressively reduced traditional barriers to trade such as tariffs and quotas which are readily measurable. However, as trade becomes more liberalized, focus has now shifted to other determinants of international trade that add costs to goods as they cross borders such as procedures, paperwork and administrative formalities. Reducing these costs enabled firms take advantage of new market openings. Cross border trade facilitation particularly has been identified as a tool for increased and smoother trade between countries. In Africa, the East African countries have followed suit to encourage intra-regional trade among Partner States resulting in the need to assess the effects of these facilitation measures on trade cost. This study was guided by two objectives: to assess the effect of cross-border trade facilitation measures on trade costs in East African region; and to assess the control effect of GDP per Capita on the relationship between cross-border trade facilitation measures and trade costs in the East African region. The study was underpinned by the positivism philosophy with three theories: Comparative Advantage; Heckscher – Ohlin Model: and Simple Iceberg partial equilibrium model used as guiding principles. Panel data from secondary sources was collected and analyzed in relation to the objectives. The research conducted diagnostics tests and utilized the random effects panel regression in testing for the magnitude of the relationship between the study variables. The analysed research data was presented using tables. The findings of the study showed that overall, trade facilitation measures and GDP per capita had a positive and significant influence on the trade costs. The study concluded that: customs and border management (time to import and export and cost to import and export) have an insignificant influence on average trade costs within the region; infrastructure development index had a positive and significant influence on trade costs; the regulatory quality index had an insignificant influence on trade costs; and GDP per capita had a negative and significant influence on the trade costs. The study recommended that member states should invest more in improving their infrastructure which is critical in conducting trade in the region; that member states should formulate and implement policies that can boost economic growth and development; and that member states should ramp up their efforts to implement the trade facilitation measures by taking advantage of the technical capacity building being offered by WTO as part of the Trade facilitation Agreement (TFA) to build its capacity to implement the trade facilitation reforms.