Revisiting the effect of the EAC customs union on intra-regional trade performance: does it only matter for exports?

Abstract

Regions worldwide are increasingly establishing customs unions, yet their impact on trade remains uncertain. This study investigates the influence of the East African Community (EAC) customs union on intra-regional trade performance, specifically assessing whether customs unions affect exports, imports, and total trade similarly. Utilizing the gravity equation of intra-regional trade spanning 2002-2021, the analysis indicates that customs unions do not exhibit a significant effect on exports, imports, or total trade. However, a detailed examination reveals varying effects across EAC partner states. While the customs union notably boosts exports in Tanzania and Burundi, it stimulates imports in Uganda, but dampens imports in Kenya. Moreover, the results are sensitive to market size metrics, with differences observed amongst countries. Notably, when market size is gauged by population, the customs union significantly impacts exports in all EAC partner states except Uganda, albeit with variations in the directions of effects. This study endeavors to comprehensively assess regional integration, employing diverse trade measurement approaches. The findings underscore a heterogeneous trade effect of customs unions, suggesting that generalized analyses may offer limited, and potentially misleading, insights into trade policy effects.