Trade and Investment in East Africa: Prospects, Challenges and Pathways to Sustainability (Frontiers in African Business Research)

This book provides a thorough understanding of the key policy debates on international trade and investment for development with a focus on the East African Community (EAC) to strengthen Member States’ capacity to develop policies to promote their exports’ competitiveness and diversification. Beyond Member States’, the book serves as a base for a deeper understanding of the challenges, opportunities and requirements of the intra-continental trade agreement which is now in sight with the ratification of the Tripartite (EAC-COMESA-SADC) Free Trade Area that is critical in addressing key constraints to trade in the African continent. Moreover, the lessons from this edited volume may also extend to the challenges and opportunities of the African Continental Free Trade Area. The book brings together a comprehensive overview and an evidence-based analysis that can be considered best practice in the region. The trade and investment policy analysis of constraints and opportunities aims to improve trade and competitiveness and covers macro- (economy-wide), meso- (sectoral) and micro- (firm or household) levels. This multi-level approach is crucial for understanding how current trade and investment policies limit competitiveness and diversification in order to identify more tangible policy action for overcoming such constraints. The individual contributors follow comprehensive applied empirical approaches, and each chapter generates knowledge needed to identify key challenges and opportunities focusing on research-led policy-relevant approaches that enable readers to better understand national, bilateral, and multilateral cooperation as well as policies for sustainable development in East Africa. The contributors know the EAC context very well as their engagement in policymaking goes beyond the context of the papers they are writing about. The individual chapters were developed as part of a research and capacity building programme under the aegis of ACP and EUthat we implemented in 2020-2022. The research project well fits into the Frontiers in African Business Research series as we have many African contributors. The contributions matter to policymakers and academic circles. For students, the book serves as an excellent guide for understanding international trade and investment theories and gaining up-to-date knowledge on developments in the world economy and their effects on developing countries and SDGs. Trade policy researchers and students will be able to extend theories and empirical data to address new and emerging topics beyond the settings already covered in the book. Acknowledgements EU Disclaimer Contents Part I Introduction, Policy Framework and Challenges 1 Trade and Investment in East Africa: Introduction, Overview, and Implications 1.1 Introduction 1.2 Strengthening Trade Capacities 1.3 Overview and Structure of the Chapters 1.3.1 The Potential for Trade and Investment 1.3.2 Productivity and Competitiveness 1.3.3 Industries, Cooperatives, and Value Chains 1.4 What Next? 1.4.1 Deepening Economic Integration 1.4.2 Implications and Key Messages References 2 EAC Integration: Evidence-Based Policy in Difficult Times 2.1 Introduction 2.2 A Short History of East African Community Integration 2.2.1 The Defunct East African Community 2.2.2 Re-Establishment of the EAC in Context 2.3 Progress Made on Deepening the EAC Integration 2.3.1 Customs Union Protocol 2.3.2 Common Market Protocol 2.3.3 Monetary Union Protocol 2.3.4 Political Federation Protocol 2.3.5 EAC Institutions 2.4 Enabling Environment 2.4.1 Governance Institutions 2.4.2 Legal and Regulatory Framework 2.4.3 Policy Space 2.5 Challenges in the EAC 2.5.1 Political and Legal Challenges 2.5.2 Economic Challenges 2.5.3 Social and Cultural Challenges 2.6 Measures to Address Challenges in the EAC Integration 2.6.1 Measures to Address Political and Legal Challenges 2.6.2 Measures to Address Economic Challenges 2.6.3 Measures to Address Social and Cultural Challenges 2.7 Conclusions References 3 Preferential Market Access, Foreign Aid, and Economic Development. A Case of the EU-ACP Preferential Trade Agreement 3.1 Introduction 3.2 Data 3.3 Empirical Framework 3.4 Estimation, Results, and Discussion 3.4.1 Assessment of the EU-ACP PTA 3.4.2 Market Access and Economic Development 3.4.3 Market Access, Foreign Aid and Economic Development 3.4.4 Robustness 3.5 Conclusion Appendix: ACP Beneficiaries References Part II Trade Potential 4 Investment Climate, Firm Heterogeneity, and Internationalization of Firms: What Matters for EAC Firms? 4.1 Introduction and Background 4.2 Data 4.3 Empirical Strategy 4.4 Empirical Results 4.5 Conclusion and Policy Recommendations References 5 Trade Complementarities Between Europe and Tanzania 5.1 Introduction 5.2 Methodology and Data 5.2.1 Methodology 5.2.2 Data 5.3 Tanzania’s Trade 5.3.1 Tanzania’s Openness to Trade 5.3.2 Export Diversification 5.3.3 Intra-Industry Trade 5.4 Overview of Findings 5.5 Detailed Findings 5.5.1 Revealed Comparative Advantage (RCA) 5.5.2 Revealed Trade Advantage (RTA) 5.5.3 The Trend of Intra-Industry Trade for All Goods in Tanzania and Europe 5.6 Trade Complementarities Between Tanzania and Europe 5.6.1 Trade Complementarities from Europe and Central Asia to Tanzania 5.7 Conclusion and Recommendations References 6 Trade Potential and Bottlenecks in East Africa: A Gravity Approach 6.1 Introduction 6.2 Data 6.2.1 Time and Cost to Export and Import 6.2.2 Monadic and Dyadic Control Variables 6.3 Empirical Strategy 6.4 Empirical Findings 6.4.1 Exports 6.4.2 Regional Economic Integration 6.4.3 Imports 6.5 Conclusion and Policy Recommendations Appendix 6.1 References Part III Productivity and Competitiveness 7 Productivity Premia and Firm Heterogeneity in Eastern Africa 7.1 Introduction 7.2 The Relationship Between Productivity and Firm Heterogeneity 7.3 Data 7.3.1 Data Source and Construction 7.3.2 Descriptive Analysis 7.4 Empirical Approach 7.5 Estimation Results 7.5.1 Main Results: Productivity and Heterogeneity 7.5.2 Further Investigations and Robustness Analyses 7.6 Discussion and Conclusion Appendix References 8 Export Status Changes and Firm Productivity: Evidence from EAC Countries 8.1 Introduction 8.2 Export Performance for EAC Countries: A Brief Overview 8.3 Export and Firm Performance Debate 8.3.1 Good Performance Prior to Exporting 8.3.2 Good Performance as a Result of Exporting 8.3.3 Empirical Debate 8.3.4 The Data 8.4 Export Premia of EAC Firms 8.5 Export Status Changes and Firm Productivity 8.5.1 Learning by Exporting Among EAC Firms 8.5.2 Learning Heterogeneity Between Foreign Owned and Domestic Firms 8.6 Summary, Conclusions, and Policy Implications 8.6.1 Summary and Conclusions 8.6.2 Policy Implications References 9 The Effect of Foreign Direct Investment and Trade Openness on the Firms' Export Competitiveness and Products Diversification Among East African Community Members 9.1 Introduction 9.1.1 An Overview of the Study 9.2 Performance of EAC Countries 9.2.1 Industrial Development Agenda in EAC Members 9.2.2 Trade Openness in Different Regions Compared to the EAC Region 9.2.3 Trend of FDI Inflows Among EAC 9.2.4 Firms Export Product Diversification 9.3 Review of Literature 9.3.1 Theoretical Literature 9.3.2 Empirical Literature 9.4 Methodology 9.4.1 Theoretical Relationship Among FDI and Trade Openness and Export Competitiveness 9.4.2 Method of Analysis 9.4.3 Model Specification 9.4.4 Data Sources 9.5 Results and Discussions 9.5.1 Summary Statistics and Correlation Matrix 9.5.2 Selected Method of Analysis 9.5.3 Estimation Results 9.5.4 Impact of FDI Inflows and Trade Openness on Firms’ Export Diversification 9.6 Conclusion and Recommendations References 10 Competitiveness of East African Exports: A Constant Market Share Analysis 10.1 Introduction 10.2 Literature Review 10.3 Methodology 10.4 Findings 10.4.1 Descriptive Findings 10.4.2 World Trade Effect 10.4.3 Commodity Composition Effect 10.4.4 Competitiveness Effect 10.5 Discussion 10.5.1 Findings 10.5.2 Conclusion and Policy Implications References Part IV Industries, Cooperatives and Value Chains 11 Tanzania’s Leather Value Chain: A Review of the Literature 11.1 Introduction 11.2 Data and Methodology 11.3 Global Leather Market Trends 11.4 Overview of Tanzania Leather Industry 11.5 The Tanzanian Leather Value Chain 11.5.1 Livestock Production 11.5.2 Slaughter 11.5.3 Hide and Skin (H&S) Collection 11.5.4 The Tanning Industry 11.5.5 Leather Goods Manufacturing 11.6 Trade Policy 11.7 Regional and International Comparisons 11.7.1 Regional Comparisons 11.7.2 International Comparisons 11.8 Conclusion References 12 Determinants of Horticultural Export and Welfare Impact of Smallholder Farmers: Evidence from Common Beans (Phaseolus Vulgaris L) Farming in Arusha Tanzania 12.1 Introduction 12.1.1 Problem Statement and Initial Research Questions 12.2 Overview of Common Bean Production and Export in Tanzania 12.2.1 Horticultural Crops Export in Tanzania 12.3 Empirical Review of Horticultural Export 12.4 Methodology 12.4.1 Description of the Study Area 12.4.2 Research Design 12.4.3 Data Collection 12.4.4 Sample Size and Sampling Technique 12.5 Analytical Methods 12.5.1 Socio-Economic, Institutional, and Production Factors Influencing Common Beans Export and Its Extent by Small-Scale Farmers 12.5.2 Modeling the Impact of Horticulture Export on Farmers Welfare 12.6 Results and Discussions 12.6.1 Socio-Economic, Production, and Institutional Characteristics of Common Beans Farmers 12.6.2 Socio-Economic Factors of Common Beans Farmers 12.6.3 Production Characteristics of Common Beans Farmers 12.6.4 Institutional Characteristics of Common Beans Farmers 12.6.5 Welfare Factors of the Common Beans Farmers 12.6.6 Factors Influencing Common Beans Export 12.6.7 Factors Influencing farmer’s Extent of Common Beans Export 12.6.8 Impact of Common Beans Export on farmer’s Welfare 12.7 Conclusion and Recommendation 12.7.1 Summary and Conclusion 12.7.2 Policy Implications and Recommendations References 13 Export Performance of the Horticultural Sub-Sector in Tanzania 13.1 Introduction 13.1.1 Horticulture and the Tanzanian Economy 13.1.2 Statement of the Problem 13.1.3 Research Objectives 13.2 Methodology 13.2.1 Data Sources and Types 13.2.2 Variables and Measurements 13.2.3 Data Analysis 13.2.4 Econometric Model 13.3 Results and Discussion 13.3.1 Descriptive Statistics of Variables 13.3.2 Stationarity Tests 13.3.3 Co-Integration Tests 13.3.4 Factors Affecting the Growth of Horticultural Sub-Sector 13.3.5 Error Correction Model Estimation 13.4 Conclusion and Policy Implications References 14 The Seaweed Sector in Zanzibar: A Multimethod Approach to Value Chain Analysis 14.1 Introduction 14.2 Methods and Methodology 14.2.1 Sampling Design and Size 14.2.2 Data Collection 14.2.3 Survey Data Analysis 14.3 Findings and Discussions 14.3.1 Livelihoods 14.3.2 Quality, Technology, and Marketing of Seaweeds 14.3.3 Issues Affecting Seaweed Farming 14.4 Conclusions References 15 The Role of Cross-Border Cooperatives in the EAC: A Structured Review 15.1 Introduction 15.2 Cooperative Organization: Definition, Principles, Nature, and Context 15.2.1 Socio-Economic Contribution of Cooperatives 15.2.2 Cross-Border Cooperatives 15.3 Methodology and Characteristics of the Literature 15.3.1 Introduction 15.3.2 Search Strategy 15.3.3 Article Selection and Data Extraction 15.3.4 Limitations 15.4 Results 15.4.1 Descriptive Studies Characteristics 15.4.2 Factors Influencing Small-Scale Traders’ Participation in Cooperatives. 15.4.3 The Socio-Economic Effect of Participation in Cooperatives 15.5 Conclusions and Suggestions for Future Research Appendix References Index This book provides a thorough understanding of the key policy debates on international trade and investment for development with a focus on the East African Community (EAC) to strengthen Member States capacity to develop policies to promote their exports competitiveness and diversification. Beyond Member States, the book serves as a base for a deeper understanding of the challenges, opportunities and requirements of the intra-continental trade agreement which is now in sight with the ratification of the Tripartite (EAC-COMESA-SADC) Free Trade Area that is critical in addressing key constraints to trade in the African continent. Moreover, the lessons from this edited volume may also extend to the challenges and opportunities of the African Continental Free Trade Area. The book brings together a comprehensive overview and an evidence-based analysis that can be considered best practice in the region. The trade and investment policy analysis of constraints and opportunities aims to improve trade and competitiveness and covers macro- (economy-wide), meso- (sectoral) and micro- (firm or household) levels. This multi-level approach is crucial for understanding how current trade and investment policies limit competitiveness and diversification in order to identify more tangible policy action for overcoming such constraints. The individual contributors follow comprehensive applied empirical approaches, and each chapter generates knowledge needed to identify key challenges and opportunities focusing on research-led policy-relevant approaches that enable readers to better understand national, bilateral, and multilateral cooperation as well as policies for sustainable development in East Africa. The contributors know the EAC context very well as their engagement in policymaking goes beyond the context of the papers they are writing about. The individual chapters were developed as part of a research and capacity building programme under the aegis of ACP and EU that we implemented in 2020-2022. The research project well fits into the Frontiers in African Business Research series as we have many African contributors. The contributions matter to policymakers and academic circles. For students, the book serves as an excellent guide for understanding international trade and investment theories and gaining up-to-date knowledge on developments in the world economy and their effects on developing countries and SDGs. Trade policy researchers and students will be able to extend theories and empirical data to address new and emerging topics beyond the settings already covered in the book