Determinants of Uganda’s trade flows with her East African Community state partners

Abstract

There are concerns that some East African Community member states may not realize the full benefits of regional integration. This concern has motivated this study of determinants of Uganda’s trade flows with her East African Community (EAC) trading partners’ states to examine the determinants of the trade flow component for Uganda in an attempt to establish its likely benefits from the regional integration initiatives. The objectives of this study are: to examine trends of Uganda’s import and export trade flows; to examine the impact of market factors on Uganda’s import and export trade flows and to assess the impact of trade communication infrastructure on Uganda’s import and export trade flows with her EAC state partners. This study adopted the longitudinal research design and involved the five EAC state parties (Burundi, Kenya, Rwanda, Tanzania and Uganda). The study used data generated from United Nations (UN) Commodity Trade (COMTRADE), International Financial Statistics Database and Statistical Abstracts from 1993 to 2013 for specific study variables. Data analysis was done using EViews (software). Data analysis involved multivariate regression based on Augmented Gravity Model variant to establish the determinants of Uganda’s import and export trade flows with her EAC state partners. Results show a positive and strong correlation between Gross Domestic Product (GDP), population, distance between countries’ capitals and membership to EAC with import and export trade flows. At the multivariate level the coefficient of determination (R2 ) is 0.45 implying that 45% of the variations in Uganda’s bilateral trade flows (dependent variable) can be explained by market and trade communication factors (independent variables). The study concludes that market factors: GDP of Uganda’s trading partner, GDP per capita of Uganda, population of Uganda, the absolute difference between GDP per capita of trading partners, sharing common border, membership to EAC and transport costs (proxied by distance between partner’s capitals) were major determinants of Uganda’s bilateral trade flows. The study recommends adoption of policies that support economic growth (GDP); deepen economic integration (EAC) efforts; improve trade communication infrastructure to reduce transport costs to fully reap from her comparatively advantaged position (attributed to David Ricardo’s Classical Trade Theory) in production and export of her export products and her factor/ resource endowments (propounded by Heckscher-Ohlin Theory of international trade).