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An Empirical Evaluation of Trade Potential in Southern African Development Community

An Empirical Evaluation of Trade Potential in Southern African Development Community

Paper No. RP_235 | By Kisukyabo Simwaka |  August 2011 | English
This paper attempts to estimate the trade potential expected from the Southern African Development Community Free Trade Area (SADC FTA). Specifically, the study investigates what the southern African countries stand to gain by way of increases in intra-regional trade if all trade barriers are removed. In order to assess the trade potential compared to its current level, a gravity model has been estimated. Results show that the observed intra-regional trade is lower than its potential. The results suggest that there is trade potential in the sub-region. There is no question that an FTA will enhance the prospects for increasing intra-regional trade. The results are in agreement with Evans (1997), who found that the FTA is likely to lead to trade creation, and also the African Development Bank (1993) whose results found that there is considerable potential for the non-Southern African Customs Union (SACU) countries to switch supply from developing countries to South Africa. The results, however, differ with Chauvin and Gaullier (2002) and Cassim (2001) whose results indicated that SADC trade potentials are rather small, especially for South African exports. They also differ with Elbadawi (1997) whose results indicate that SADC did not have a significant effect on trade among its members.

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