Empirical evaluation of the East African regional integration agreement: the case of Kenya

Abstract

This research paper quantifies the trade benefits of the EAC to the Kenyan economy and the amount of trade creation and trade diversion in three main sectors; manufacturing, agriculture and mining. Using panel data ranging from 2000 to 2010 and a sample of 17 countries, the study used a gravity model so as to effectively capture the trade flows. The regression results for the regional dummy variables are found to be both negative and significant; hence the formation of the EAC enhances increased trade between Kenya and EAC member states at the expense of extra-regional trade. This is because trade diversion is present both at the aggregated and sectorial trade levels of Kenya. The extent however varies from sector to sector with a comparatively higher decline in manufactured goods exports as compared to the mining and agricultural exports. Agricultural exports however have the least decline observable.