Welfare Effects of Economic Integration: The Case of COMESA

Abstract

Purpose: The purpose of the study is to determine the effect of COMESA RTA on welfare of member states. Methodology: The study has used a panel data analysis of eighteen COMESA member countries and their major trading partners to determine the effects of regional trade arrangements using the augmented gravity model of trade. A random verses fixed effect models were used to estimate the model putting into consideration the time invariant variables. Results: The results showed that the variables used are significant and determines the effects of bilateral trade on welfare. The estimated results showed that exporters GDP significantly improves export trade by more than 100%; while the importers GDP does less proportionately. The size (population) variable coefficients are positive and significant. The estimated results also shows that resistant factor (distance) as a proxy for transportation cost plays an important role in determining trade flows. Unique contribution to theory, practice and policy: The study recommended that, member countries governments promote more active regional participation that promote welfare gain that can be distributed to the nationals in terms of development projects geared towards alleviating poverty in the region.