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An Empirical Evaluation of Trade Potential in Southern African Development Community

Simwaka, Kisu (2010): An Empirical Evaluation of Trade Potential in Southern African Development Community. Forthcoming in: African Economic Research Consortium

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Abstract

This paper attempts to estimate the trade potential expected from the 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 findings by Evans (1997) who found that that the FTA is likely to lead to trade creation, and also 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 third countries to South Africa. The results, however, differ with findings by Chauvin (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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