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Evaluating Trade Creation and Trade Diversion Effects Between Egypt and COMESA: Evidence from Gravity Model

Received: 3 June 2022     Accepted: 22 June 2022     Published: 29 June 2022
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Abstract

Egypt has been an active participant in COMESA since its inception. Egypt's trade flows with the members of COMESA have grown steadily since the agreement entered into force. This paper investigates the impact of the COMESA free trade agreement on Egypt's trade flows, focusing mainly on trade creation and trade diversion effects. Present paper employed the augmented gravity model to examine whether the COMESA agreement has created or diverted trade. The model is estimated with panel data for a sample of 52 countries that are COMESA's members and Egypt's main trading partners, spanning a 25-year period from 1994 to 2018 covering the period pre and post the agreement's implementation. The Poisson pseudo-maximum likelihood has been used to estimate the model to address zero trade flows and the presence of heteroscedasticity. To produce unbiased and consistent results, the omitted variables are addressed by controlling for time-variant multilateral resistance factors and unobserved time-invariant country characteristics. The findings show the formation of COMESA has resulted in trade creation between Egypt and members of COMESA. However, there is no evidence that the formation of COMESA has resulted in trade diversion. The results also show that, the conventional gravity model variables (GDPs, geographical distance, official common language, and being the importing country landlocked) are the major determinants of Egypt's trade flows. Based on the foregoing, in order to boost Egypt's trade flows with the COMESA to meet untapped potential, RTA schemes should address issues that impede intra-COMESA trade by improving diverse production, multi-country infrastructure, and policy coordination.

Published in International Journal of Business and Economics Research (Volume 11, Issue 3)
DOI 10.11648/j.ijber.20221103.20
Page(s) 180-186
Creative Commons

This is an Open Access article, distributed under the terms of the Creative Commons Attribution 4.0 International License (http://creativecommons.org/licenses/by/4.0/), which permits unrestricted use, distribution and reproduction in any medium or format, provided the original work is properly cited.

Copyright

Copyright © The Author(s), 2022. Published by Science Publishing Group

Keywords

Trade Creation, Trade Diversion, COMESA, Gravity Model, Panel Data, PPML

References
[1] World Bank. (2000). Trade Blocs. New York: Oxford University Press.
[2] Economic Commission for Africa. (2001). Transforming Africa’s Economies. Addis Ababa Ethiopia: Economic Commission for Africa.
[3] Ncube, M., Faye, I., & Chouchane, A. V. (2015). Regional Integration and Trade in Africa. African Development Bank.
[4] COMESA. (2018). COMESA in Brief "Growing Together, for Prosperity". Lusaka, ZAMBIA: COMESA.
[5] Afifi., T. M. (2007). The Challenge of Implementing the Overlapping Regional Trade Agreements in Egypt. Doctoral Thesis. Friedrich-Alexander-Universität Erlangen-Nürnberg, 31-36-37.
[6] Jeyarajah, S. (2019). A Survey of the Evolution of International Trade Theories. IOSR Journal of Economics and Finance, 10, 67.
[7] Viner, J. (1950). The Customs Union Issues. New York: Oxford University Press.
[8] Magee, C. (2008). New measures of trade creation and trade diversion. Journal of International Economics, 75, 349-362.
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[11] Yeats, A. (1998). Does Mercosur's Trade Performance Raise Concerns about the Effects of Regional Trade Arrangements? The World Bank Economic Review, 12, 1-28.
[12] Geda, A., & Taye, H. K. (2008). Regional Economic Integration in Africa: A Review of Problems and Prospects with a Case Study of COMESA. Journal of African Economies, 17, 357-394.
[13] Seid, E. H. (2013). Regional Integration and Trade in Africa: Augmented Gravity Model Approach. The Horn Economic and Social Policy Institute. Working Paper No. 13/3.
[14] nançli, S., & Addi, H. M. (2019). Trade Creation and Trade Diversion Effects in the Economic Community in Central African States. African Development Review, 31, 307-317.
[15] Musila, J. W. (2004). The common market for Eastern and Southern Africa and Kenya’s export trade. International Journal of Social Economics, 31, 67-77.
[16] Karukuza, H. T. (2015). Determinants of Uganda's Export Performance; A Gravity Model Approach. International Journal of Business and Economics Research.
[17] Kassa, W., & Sawadogo, P. N. (2021). Trade Creation and Trade Diversion in African RECs: Drawing Lessons for AFCFTA. World Bank Policy Research Working Paper No: 9761.
[18] Silva, S., & Tenreyro, S. (2006). The Log of Gravity. The Review of Economics and Statistics, 653.
[19] Anderson, J. (1979). A Theoretical Foundation for Gravity Equation. The American Economic Review, 69, 106.
[20] Bergstrand, J. (1985). The gravity equation in international trade: some microeconomic foundations and empirical evidence. The Review of Economics and Statistics, 67, 474.
[21] Bergstrand, J. (1989). The Generalized Gravity Equation, Monopolistic Competition, and the Factor Proportions Theory in International Trade. The Review of Economics and Statistics, 71, 152.
[22] McCallum, J. (1995). National Borders Matter: Canada-U.S. Regional Trade Patterns. The American Economic Review.
[23] Anderson, J., & Van Wincoop, E. (2003). Gravity With Gravitas: A Solution to the Border Puzzle. American Economic Review, 93, 170-192.
[24] Beenstock, M., & Felsenstein, D. (2019). The Econometric Analysis of Non-Stationary Spatial Panel Data. Advances in Spatial Science. Springer.
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Cite This Article
  • APA Style

    Mosaad Mohamed Ismail Elgayish, Ahmed Abdelmaksoud Abdelaziz Ali. (2022). Evaluating Trade Creation and Trade Diversion Effects Between Egypt and COMESA: Evidence from Gravity Model. International Journal of Business and Economics Research, 11(3), 180-186. https://doi.org/10.11648/j.ijber.20221103.20

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    ACS Style

    Mosaad Mohamed Ismail Elgayish; Ahmed Abdelmaksoud Abdelaziz Ali. Evaluating Trade Creation and Trade Diversion Effects Between Egypt and COMESA: Evidence from Gravity Model. Int. J. Bus. Econ. Res. 2022, 11(3), 180-186. doi: 10.11648/j.ijber.20221103.20

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    AMA Style

    Mosaad Mohamed Ismail Elgayish, Ahmed Abdelmaksoud Abdelaziz Ali. Evaluating Trade Creation and Trade Diversion Effects Between Egypt and COMESA: Evidence from Gravity Model. Int J Bus Econ Res. 2022;11(3):180-186. doi: 10.11648/j.ijber.20221103.20

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  • @article{10.11648/j.ijber.20221103.20,
      author = {Mosaad Mohamed Ismail Elgayish and Ahmed Abdelmaksoud Abdelaziz Ali},
      title = {Evaluating Trade Creation and Trade Diversion Effects Between Egypt and COMESA: Evidence from Gravity Model},
      journal = {International Journal of Business and Economics Research},
      volume = {11},
      number = {3},
      pages = {180-186},
      doi = {10.11648/j.ijber.20221103.20},
      url = {https://doi.org/10.11648/j.ijber.20221103.20},
      eprint = {https://article.sciencepublishinggroup.com/pdf/10.11648.j.ijber.20221103.20},
      abstract = {Egypt has been an active participant in COMESA since its inception. Egypt's trade flows with the members of COMESA have grown steadily since the agreement entered into force. This paper investigates the impact of the COMESA free trade agreement on Egypt's trade flows, focusing mainly on trade creation and trade diversion effects. Present paper employed the augmented gravity model to examine whether the COMESA agreement has created or diverted trade. The model is estimated with panel data for a sample of 52 countries that are COMESA's members and Egypt's main trading partners, spanning a 25-year period from 1994 to 2018 covering the period pre and post the agreement's implementation. The Poisson pseudo-maximum likelihood has been used to estimate the model to address zero trade flows and the presence of heteroscedasticity. To produce unbiased and consistent results, the omitted variables are addressed by controlling for time-variant multilateral resistance factors and unobserved time-invariant country characteristics. The findings show the formation of COMESA has resulted in trade creation between Egypt and members of COMESA. However, there is no evidence that the formation of COMESA has resulted in trade diversion. The results also show that, the conventional gravity model variables (GDPs, geographical distance, official common language, and being the importing country landlocked) are the major determinants of Egypt's trade flows. Based on the foregoing, in order to boost Egypt's trade flows with the COMESA to meet untapped potential, RTA schemes should address issues that impede intra-COMESA trade by improving diverse production, multi-country infrastructure, and policy coordination.},
     year = {2022}
    }
    

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  • TY  - JOUR
    T1  - Evaluating Trade Creation and Trade Diversion Effects Between Egypt and COMESA: Evidence from Gravity Model
    AU  - Mosaad Mohamed Ismail Elgayish
    AU  - Ahmed Abdelmaksoud Abdelaziz Ali
    Y1  - 2022/06/29
    PY  - 2022
    N1  - https://doi.org/10.11648/j.ijber.20221103.20
    DO  - 10.11648/j.ijber.20221103.20
    T2  - International Journal of Business and Economics Research
    JF  - International Journal of Business and Economics Research
    JO  - International Journal of Business and Economics Research
    SP  - 180
    EP  - 186
    PB  - Science Publishing Group
    SN  - 2328-756X
    UR  - https://doi.org/10.11648/j.ijber.20221103.20
    AB  - Egypt has been an active participant in COMESA since its inception. Egypt's trade flows with the members of COMESA have grown steadily since the agreement entered into force. This paper investigates the impact of the COMESA free trade agreement on Egypt's trade flows, focusing mainly on trade creation and trade diversion effects. Present paper employed the augmented gravity model to examine whether the COMESA agreement has created or diverted trade. The model is estimated with panel data for a sample of 52 countries that are COMESA's members and Egypt's main trading partners, spanning a 25-year period from 1994 to 2018 covering the period pre and post the agreement's implementation. The Poisson pseudo-maximum likelihood has been used to estimate the model to address zero trade flows and the presence of heteroscedasticity. To produce unbiased and consistent results, the omitted variables are addressed by controlling for time-variant multilateral resistance factors and unobserved time-invariant country characteristics. The findings show the formation of COMESA has resulted in trade creation between Egypt and members of COMESA. However, there is no evidence that the formation of COMESA has resulted in trade diversion. The results also show that, the conventional gravity model variables (GDPs, geographical distance, official common language, and being the importing country landlocked) are the major determinants of Egypt's trade flows. Based on the foregoing, in order to boost Egypt's trade flows with the COMESA to meet untapped potential, RTA schemes should address issues that impede intra-COMESA trade by improving diverse production, multi-country infrastructure, and policy coordination.
    VL  - 11
    IS  - 3
    ER  - 

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Author Information
  • Economics Department, Faculty of Politics & Economics, Beni-Suef University, Beni-Suef, Egypt

  • Economics Department, Faculty of Politics & Economics, Beni-Suef University, Beni-Suef, Egypt

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