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This study aims to examine the effects of Trade creation and diversion of the East African Community Customs Union (EAC CU) on Tanzania’s selected imports, which have been selected basing on the volume of Trade and their Trade performance. The study uses bilateral import data from 2000 to 2017, which is disaggregated into three commodities: Chemicals, foodstuffs and Fuel. The analysis uses an augmented gravity model and random effects estimator methods and covers 15 countries which include the EAC CU members and Tanzania’s leading sources of the selected imports. The Empirical analysis shows that the EAC CU has caused trade diversion in all imports, which indicates that there is a reduction in imports volume from the rest of the world.
In this study I argue that Tanzania Government loose some possible Tariffs revenue that could have been collected on imports, this is because of the reduction in imports volumes of the main imports products from the rest of the world which is caused by the presence of Trade Diversion on all products as the Empirical results shows.
The results also indicate that all product imports are positively influenced by the GDP of the exporter country and negatively by distance between the trading partners. The population of the exporter country positively affects all the imports. The GDP and population of the importer country are not statistically significant for all the three commodities. Since GDP of Tanzania almost impact negatively on trade flows (although the coefficients are not significant), this study suggests that Tanzania should make sure that it makes policies that are geared towards economic growth in order to sustainably afford intra-EAC imports.
Due to the facts that, the study found that there is no Trade Creation on Tanzania imports, therefore no welfare gains despite free movement of goods and services within EAC and CET. Therefore, the study strongly suggests that efforts should be put in place to reduce all types of non-tariff barriers because they contribute to increased cost of trade.
The study further reveals that distance influences negatively bilateral trade. Since transport cost is one of the costs of trade, infrastructure within Tanzania and with the rest of the world should be developed.
Also, this study proposes that, Technology transfer, innovation and skills developments should be at the Centre of the endeavor to produce what is currently imported in Tanzania. Tanzania should leverage on the CET to build the industrial productive capacity by identifying a set of industries and protecting them to grow to competitive levels.
In this study I argue that Tanzania Government loose some possible Tariffs revenue that could have been collected on imports, this is because of the reduction in imports volumes of the main imports products from the rest of the world which is caused by the presence of Trade Diversion on all products as the Empirical results shows.
The results also indicate that all product imports are positively influenced by the GDP of the exporter country and negatively by distance between the trading partners. The population of the exporter country positively affects all the imports. The GDP and population of the importer country are not statistically significant for all the three commodities. Since GDP of Tanzania almost impact negatively on trade flows (although the coefficients are not significant), this study suggests that Tanzania should make sure that it makes policies that are geared towards economic growth in order to sustainably afford intra-EAC imports.
Due to the facts that, the study found that there is no Trade Creation on Tanzania imports, therefore no welfare gains despite free movement of goods and services within EAC and CET. Therefore, the study strongly suggests that efforts should be put in place to reduce all types of non-tariff barriers because they contribute to increased cost of trade.
The study further reveals that distance influences negatively bilateral trade. Since transport cost is one of the costs of trade, infrastructure within Tanzania and with the rest of the world should be developed.
Also, this study proposes that, Technology transfer, innovation and skills developments should be at the Centre of the endeavor to produce what is currently imported in Tanzania. Tanzania should leverage on the CET to build the industrial productive capacity by identifying a set of industries and protecting them to grow to competitive levels.