Regional market integration in East Africa: Local but no regional effects?

Abstract

We investigate the spatial impact of the establishment of a regional economic community between Kenya, Tanzania, and Uganda in 2001. Measuring economic activity using satellite imagery of lights emanating from Earth at night, we demonstrate that cities near the community's internal borders expanded more than cities further away. The growth effect is temporary and highly localized: only cities less than 90 min of travel from the border experienced an acceleration in growth rates; after four years growth rates revert to their pre-treatment level. We show that this is consistent with an asymmetric reduction in trade costs for two types of trade modalities that co-exist in many parts of sub-Saharan Africa, local small-scale trade and regional large-scale trade, with a larger reduction in costs of the former. Yet, while local effects are relatively large, equivalent to a 5% higher GDP for cities near the EAC's internal borders, region-wide effects are non-significant.