Monitoring Regional Trade Integration: The case of Africa

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Monitoring Regional Trade IntegrationThe case
of Africa

• Lelio Iapadre
• (University of LAquila and UNU-CRIS)
• 4th GARNET Annual Conference
• IFAD, Rome, 13 November 2009
• Based on P. Lelio Iapadre and Francesca Luchetti,
  Trade Regionalisation and Openness in Africa,
  background paper for the European Report on
  Development

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The geographic scope of international integration

• National perspective
• Openness to the rest of the world
• Geographic diversification and concentration
• The role of distance
• Regional perspective
• Intra- and extra-regional integration
• Global perspective
• Global integration as an average of national
  integration indicators
• Intrinsically global processes, without reference
  to national borders

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Regional Integration Basic Concepts(UNU-CRIS,
2006 World Report on Regional Integration)

• Regional integration (a political definition)
• the emergence of a governance level between the
  national and the global levels within the system
  of world governance, based on (regional)
  cooperative behaviour and the design of common
  policies and institutions by actors that
  traditionally belong(ed) to the national
  governance level
• Regionalisation
• a complex and multi-dimensional social
  transformation process, whereby the regional
  level is becoming a relevant space for many
  aspects of human behaviour and activities, driven
  by social and technological forces similar to
  those driving the globalisation process

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Regional trade integration

• Ex-ante measures
• Regional trade liberalisation
• Ex-post measures
• Trade regionalisation

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Monitoring regional trade liberalisation

• Measurement needs
• Measuring to what extent barriers to
  intra-regional trade have actually been removed
• WTO consistency of preferential integration
  agreements
• Barriers to intra-regional trade
• Barriers to extra-regional trade

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Monitoring regional trade liberalisation

• Quantitative indicators
• Average tariff rates
• Trade taxation ratios
• Effective rates of protection
• Non-tariff barriers coverage ratios
• Tariff-equivalents of non-tariff barriers
• Trade restrictiveness benchmarks
• Composite indicators of trade restrictiveness
• Indicators of market regulation
• Sector coverage of integration policies

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Monitoring regional trade liberalisation

• Qualitative indicators
• Harmonisation of regulatory regimes
• Rules of origin (symmetry and simplicity)
• Transparency of custom procedures
• Non-discrimination in the treatment of
  intellectual property rights
• National treatment in investment regulations
• Fairness of dispute-settlement procedures
• Non-discrimination in government procurement
• Harmonisation of competition rules

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Monitoring trade regionalisation

• Measurement needs
• Ex-ante regional integration potential
• Natural trading partners criteria
• Assessing the conditions for trade creation
  prevailing over trade diversion
• Ex-post trade effects of regional integration
• Intensity of intra-regional trade
• Trade creation and diversion

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Monitoring trade regionalisation

• Statistical tools
• Indicators of intra- and extra-regional trade
  intensity
• Network analysis of regional trade
• Methods to assess the impact of regional trade
  integration
• Gravity models
• Computable general equilibrium models

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Indicators of trade regionalisation the case of
Africa

• Regional integration is often considered an
  important element of development strategies in
  Africa
• Welfare and growth effects of regional
  integration policies pass through their effects
  on trade
• Traditional indicators of intra-regional trade
  intensity can be misleading
• A correct measurement of intra-regional trade
  intensity is essential to estimate the impact of
  policies and improve the specification of gravity
  models

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African regions

• Six non-overlapping African regions
• Arab Maghreb Union (AMU)
• North East Africa
• Economic Community of West African States
  (ECOWAS)
• Central Africa
• East African Community (EAC)
• Southern Africa

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Trade shares

• Intra-regional trade share
• Srr trr / trw
• 0 Srr 1
• where trr intra-regional trade of region r
• trw total trade of region r.
• Extra-regional trade share 1 Srr

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Intra-regional trade shares in Africa are very low
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Problems of trade shares
Cross-region comparisons Time-series analysis for the same region
Sensitivity to the number of countries (given the size of the region) Regions with a higher number of countries tend to show a higher intra-regional trade share An increase in the number of member countries increases a regions intra-regional trade share
Sensitivity to the size of the region (given the number of countries) Larger regions (in terms of total trade) tend to show a higher intra-regional trade share Pro-cyclical distortion
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Trade intensity indices

• Intra-regional trade intensity
• Ir Srr / Wr (trr / trw) / (twr / tww )
• where Wr region rs weight in world trade
• twr world trade with region r trw
• tww world trade
• Extra-regional trade intensity
• Er (1 Srr) / (1 Wr)
• Geographical neutrality (no preferences)
• Ir 1 ? Er 1

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Intra-regional trade shares in Africa are very
high in proportion to the regions shares of
world trade.
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Problems of trade intensity indices

• Range variability their maximum value is a
  function of the regions total trade.
• 0 Ir (tww / twr)
• 0 Er tww / (tww twr)
• Range asymmetry their range below the threshold
  value of 1 is much smaller than above.
• Dynamic ambiguity intra- and extra-regional
  trade intensity indices can move in the same
  direction, if certain conditions hold.

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A possible solution revealed trade preference
indices

• Regional trade introversion index
• Jr (HIr HEr) / (HIr HEr)
• -1 Jr 1
• where
• HIr Srr/Vr (trr/trw)/(tor/tow)
• HEr (1 Srr) /(1 Vr)
• tor regions r extra-regional trade
• tow total trade of the rest of the world.
• Regional trade extroversion index
• Fr (HEr HIr) / (HEr HIr) Jr
• -1 Fr 1
• Geographical neutrality (no preferences)
• Jr 0 ? Fr 0
• Bi-regional symmetry for i 1, 2
• J1 J2 and F1 F2

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Regional trade introversion is very high in Africa
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Geographic direction of regional trade

• Another important aspect of trade regionalisation
  is the geographic diversification of
  intra-regional trade flows.
• If the distribution of intra-regional trade flows
  were proportional to the trade size of regional
  partners (neutrality), this could reveal that
  distance-related intra-regional barriers do not
  affect the direction of bilateral trade flows.
• Intra-regional geographic neutrality index
  (IRGNIi)
• IRGNIi 1 Sj?iISij IVij /2  
• where
• ISij partner js share of region is
  intra-regional trade
• IVij partner js share of region is total
  extra-regional trade.

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Regional trade openness

• A regions relative degree of openness (Oi) can
  be measured by its trade-to-GDP ratio relative to
  the world average trade-to-GDP ratio
•   Oi (ti./yi)/(T/Y)
• where
• ti. region is total trade.
• T world trade.
• yi region is gross domestic product (GDP)
• Y world GDP.
• Symmetric indicator of relative trade openness
  (SOi)
•  SOi (ti./yi) (T ti.)/(Y yi)
  /(ti./yi) (T ti.)/(Y yi)
• 1 SOi 1

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The degree of trade openness of African RIAs is
relatively low, notwithstanding the small size of
their economies.
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Raw materials and Africas trade
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Conclusions

• Trade regionalisation in Africa is not low
• Regional trade introversion is very strong, even
  in comparison with other RIAs among developing
  countries
• This is due to their very limited capabilities in
  extra-regional trade (domestic and external
  barriers) rather than to the process of regional
  integration
• Trade introversion is falling in some African
  regions
• Increase in African inter-regional trade
  intensity in the 90s
• Increase in trade intensity with the rest of the
  world, but not with the EU

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Conclusions

• Africas world export share has been sustained by
  sales of raw materials to emerging countries
• But its share of world manufacturing exports is
  still very low and has been declining in the last
  few years
• Regional integration policies can be very
  important to promote sustainable development in
  Africa
• Their success will, however, be measured more by
  their ability to create the necessary
  infrastructure for a more effective integration
  of African countries into world markets, than on
  their effect on intra-regional trade.