Abstract:

This paper uses data on the four largest Regional Trade Agreements (RTAs) in sub-Saharan Africa to argue that the dynamic form of the gravity equation is the appropriate model to estimate the effect of RTAs on intra-African trade. The paper also suggests a better approach to examining trade relationship between members of RTAs and nonmembers. The paper uses System Generalized Method
of Moments estimator to overcome econometric issues associated with estimating dynamic models with persistent variables. The paper reports three important findings. First, a formal model selection test confirmed that the dynamic gravity model performs better than the static version. Second, the creation of COMESA and SADC has led to significant increase in trade among members. ECOWAS has increased intra-ECOWAS trade but in total has reduced intra-African trade. ECCAS has had a negative impact on both intra-ECCAS and extra-ECCAS bilateral trade flows. Third, our proposed approach to examining member-nonmember trade relationships provided the true estimates as compared to results from employing the usual approach in the literature.