Graduate School of International Studies Ajou University
This thesis examines the effects of the re-establishment of East African Community (EAC) as a regional trade agreement (RTA) on Tanzania？s trade flows. The formation of the EAC raises an important question whether this regionally based trading agreement brings economic merit to its members or not. The estimation technique of testing for the effect of regional integration on bilateral trade is based on the augmented gravity model with country specific dummies and regional integration dummies among others.
Using data on bilateral trade between Tanzania and her 30 trading partners over the period 1997？2009, this thesis reports three important results. Firstly, contrary to results from the traditional approach, estimates from panel data models indicate that both the EAC and the SADC have had low moderation in trade creation effects on Tanzania？s bilateral trade. Secondly, Tanzania？s trading partnersare somewhat opened to Tanzania？s trade. Lastly, whereas it is difficult for Tanzania？s trading goods to penetrate foreign markets, foreign goods easily penetrate into Tanzania？s market.
In fact, Tanzanian intra-bloc trade is performing under average which leads to trade diverting tendency. Since static gains from the RTAs are quite low, possibly, dynamic gains from regional integration lend more support to the economic merit of the RTAs.Therefore, the policy implication from this empirical study is that Tanzania should continue with its efforts to strengthen her regional trading, and to gain more exports market to both traditional and non-traditional trading partners, if the export-ledeconomic growth strategy is to become a reality in Tanzania.