RTA and Economic Growth. The case of SADC - DAAD partnership ...

Abstract
RTA and Economic Growth.
The case of SADC
B Seetanah
The research analyses the relationship between SADC RTA and growth for the period 1995-2008.
Random effect estimates shows that SADC trade has been growth inductive but relative less as
compared to no SADC trade. The results are confirmed using GMM panel estimates. The relatively
low contribution is in line with the statistics and highlighted that trade within SADC is still relatively
low. Trade to NONSADC countries is observed to have been very influential to the economic
development of the countries in the sample. Further analysis pertaining to the case of Mauritius
revealed that SADC trade had a relatively small output elasticity as compared to NON SADC trade
confirming that trade to the other non SADC partners, especially EU, is more influential in
explaining the Mauritian economic growth.
INTRODUCTION
Countries have been vigorously implementing RTAs as a central objective of their trade policy
(Brown, 2005). The wave of regionalism spread most visibly and it did not only alter the regional
economic relations between member countries but also highlighted the relative importance of
regionalism on a global scenario. It is noteworthy that Venables (1999) argues that regional
agreements between developing countries have been mostly related with divergence of economic
performance.
Regional trade agreement is a key strategy that is enabling countries to accelerate the expansion of
markets, widen the region’s economic space, and finally maximizing the welfare of the member
states. A prevalent global trend towards Regional trade agreements (RTAs) has been noted since the
early 1990s and from then it is still burgeoning. Presently, 157 members were recorded in the
organization. Figure 1 shows the evolution of the average number of RTA partners for the current
member of WTO.

Figure 1 - Average Number of RTA Partners over Time - Source from WTO
The different types of RTAs are shown above in the diagram. FTA stands for Free trade
agreements, FTA & EIA stands for Free trade agreement and Economic Integration Agreement, CU
stands for custom unions, CU & EIA stands for custom unions and Economic Integration
Agreement, PSA & EIA stands for property settlement agreement and Economic Integration
Agreement, EIA stands for Economic Integration Agreement and PSA only stands for property
settlement agreement.
The different agreements in WTO vary in duties towards its member states. One may be for
promoting agricultural trade amongst trade while another one is to make sure balance between
countries consumption and productions are met. WTO experienced increase in membership of
RTAs members every year. The reason for this increasing trend is the gains from increased openness
to trade are from resources which are productively allocated and thereby decrease cost, leading to a
lowering in consumer prices. The different RTAs in force in WTO are shown above in the diagram.
However, the welfare that can be earned is not guaranteed. The benefits are subject to costs and
externalities which may nullify the gains. Furthermore the trend may lead to damaging long-run
effects on external trade liberalization. The most popular issue about RTAs is discriminations and
the potential for trade diversion.
Regional Corporations behaves as a channel through which surplus national production can be
exchanged to the products of other countries. The consensus is that trade promotes growth and

educes poverty. RTAs can nevertheless fail and that in multiple facets. The impact of RTAs on an
economy is thus not conclusive.
This study aims to answer questions on whether RTA is growth conducive. In the first instance the
study is performed on a sample of SADC member states using both static and dynamic panel data
framework. The study goes further in focusing the potential growth effect of SADC on the
Mauritian case study. The latter is performed by employing a dynamic time series approach, namely
a Vector Autoregression framework which account for dynamism and endogeneity. The above
analysis requires in the first instance a decomposition of trade into SADC and non SADC so as to
have interesting comparative relative insights.
LITERATURE REVIEW
Theoretical review
Trade encourages the allocation of resources based on the perceived comparative advantage of
participating countries and derive significant gains from trading. The theory that trade is positively
correlated with economic growth goes back to Adam Smith, who greatly favoured specialization.
With regional agreements, trade certainly bolsters up, but there are no guarantees that the aggregate
benefits are distributed equitably among the trading partners. There are winners and losers in trading
relationship. What is to be taken into consideration, thus, is the degree of gain from trade. Some
factors that determine the degree of gain are; the terms of trade, exchange rate and market
characteristics of the countries. On that, Baldwin (2003) demonstrated that countries with less trade
restrictions achieve more rapidly economic growth. Trade liberalisation reduces relative price
distortions and allows those activities with a comparative advantage to expand and hence promotes
economic growth.
According to Yeats (1998), negativity in economic terms, comprise of trade diversion, reduction of
quality, increasing consumer prices and even lowering the global competitiveness of a country.
Moreover, investment, economic growth, government tax revenue and employment may also drop.
Extent of effects may fall, and wealth and income distribution and living standards may fall; stated
Woodcock (2001) to social relations. In political domain, stability and cooperation may be on
decline, and conflicts on the rise (World Bank, 2000). Barbier (2003) specified that sustainable
development may not always complement economic expansion. In terms of culture of a country,
unique identity and unity of a country may be lost; this is more acute among smaller countries

ecause of the imposition of larger countries culture; which may result in standardization of culture
among member states.
Application of regional integrations in the world has been a puzzling issue over time. Regional
integration has been encouraged to make good relationship based on regional stability and
development, hence aiming at optimising revenues at fewer risks. The formation of RTAs is driven
by a number of factors, including economic, political and security considerations. Membership to
integration is a choice which may be driven by motives like; gaining access to large markets, new
customers, competitive shoots, benefiting from MFN tariffs, enhancing investments, promoting the
environment and labour standards and so on. These integrations vary widely in structure, objectives,
sector coverage and membership. As mentioned earlier, integration envelops developing countries
amongst other staged countries. To that, Whalley (1996) argued that regionalism could serve as an
elite-socialization process and as a lock-in mechanism for domestic political and economic reforms
in less developed RTA members.
In the past decades, many authors explored integration agreements and concluded that global
economic integration is the vital to promoting resource allocation, technology transfer and
augmenting the standard of living, hence growth. Some studies have added-on that economic
integration led to trade imbalances, increased financial market volatility and nurtured less-effective
macroeconomic policies. Definitive conclusions have yet to be drawn. Moreover, Michael Mussa,
the former director of research at the International Monetary Fund (IMF) found three fundamental
factors that affect the process of economic integration, namely technology, preferences and public
policy. Increased technology has assisted economic integration by lowering the cost of
transportation and also reduced the cost of communication. Public policies depending on a
country’s objectives may promote or even hinder economic integration. Although the factors
independently influence integration, causality between them is present.
In theory and complementing statement of Balassa (1965) and DeRosa (1992), RTAs accomplish
common objectives that encourage economic transformations in trade, customs union, common
market economic union amongst others. Combination of regional, sub-regional and multilateral
negotiations enabled government to be in a more open environment for cross border economic
transactions. Government seek to enforce regional security and peace with member states and may
even try to increase power in their negotiations, by first securitizing their governance commitment

ased on political and economic reforms. They may even create and use political alliances, in the
foreground, to be prejudiced.
Some researchers argue that RTAs is an obstacle to multilateralism and globalisation. Countries are
favouring RTAs over multilateral trade objectives in their trade policy; as their belief is that gain is
higher with RTAs. However the effect of RTAs is not a basic thing which can be applied to
everything. According to the Global Economic Prospects (2005), the result of an agreement on
trade depends on their design and implementation. The most important thing in RTAs is the extent
the trade barriers are lowered. Brown (2005) complemented the success of regional integration,
which lies upon several factors, namely, domestic security, political and civic commitment, mutual
trust, macro-economic stability, good financial management and expansive national reforms.
Therefore, prosperous regional integrations shall complement and not hinder multilateral
negotiations. The aims for and welfares of forming RTAs have greatly been defined in general
context.
Frankel (1997) identified a number of traditional gains from trade; enforcing of domestic policy,
guarantees of market access, increased multilateral power, and tactical bonds to multilateral and
regional relationships. Other benefits defined by Fernandez (1997) are the increase in credibility,
signaling, insurance, and coordination amongst countries. Reasons other than benefits are also
prevalent. Firstly, the reaction to forming RTAs may be because of impatience towards the slow
process and progress of multilateral approaches like, Doha Round. Secondly, the ‘bandwagon effect’
can be one of the causes of development of RTAs. This effect was proposed by Bhagwati (1993)
and is about small countries joining an agreement to follow policies of larger countries to make up
on market. Another reason is that cooperation has increased not be globally left out.
At this instant, address will be on the objectives of a regional integration. A few to mention here are
intra REC 1 trade, free movement of persons, goods and services, macroeconomic policy
convergence, physical integration, sectoral integration and cross cutting issues.
1 Regional economic activities

Figure 2.
A diagram (Figure 2.) was set to up to illustrate the objectives that RTAs try to achieve, discussed
below and which results in cropping up of gains from trade in the region.
The first one to be considered here is Intra REC trade. Countries generally enter RTAs to increase
trade amongst member states. Countries have traded in accordance to a pattern with outside
countries other than countries in their own continent. African countries, for example, prefer to trade
with countries outside its continent rather than among themselves.
Secondly the freedom of movement; the freedom of commodities, capital and people is necessary
for successful integration. However, this process is quite troublesome but countries which adopted it
prospered compared to the others. Freedom of people includes people may travel without visa or
easily obtain visa to travel in members countries, rights of establishments and residence, shared laws
and media and so forth. Other incentives include harmonizing customs procedures and instruments,
adopting common tariffs procedures and creating a single administrative document.
Macroeconomic policy convergence is implementing a stable economy on which member states may
rely for trade. This is concerned with stabilising the factors which affect the economy such as;
inflation, interest rates, level of employment among others. Thus, the aim is to engage in prudent
macroeconomic policies to enhance economic growth and gain from sustainable development which

further results in the promotion of trade flows. These factors will vary from economies to
economies because their targets and objectives might not be similar.
Physical integration is mainly about infrastructure which greatly impact on exploitation of local
resources, transfer of information and use of communication technologies. Operational
infrastructures are thus required to aid trade.
Sectoral integration is also important. For example an agriculture based economy is open to drought,
floods and even pests. By engaging in an integration, projects such as ensuring the security of the
REC‘s food supply, the country is less vulnerable to problems like famine. Another case is where
integration cares for industries. Increase in productivity and competitiveness of countries in RTAs
were noted. Some reasons are movement of labour, special protocols applied to member states only
and so on.
The last one is cross cutting issues. This one is divided into three for clearer understanding. The first
one is private sector. With integration, an economy is forced to gather all together to work as best as
possible. For example, private and public sector have to settle arrangements on certain terms, hence
enforcing the political and economic stability in a country. The second one is peace and security. A
country will dress the image of itself in front of the member states; hence it will create a suitable
environment for trade. This leads to friendly ties in trade and stability in the country. The last one is
socio-economic issues. That is, in an RTA, issues like violence, discriminations amongst others are
cared of.
Despite the challenges in the process of an RTA, significant progress will be noted if a country is a
member in an RTA, hence member states must consider regional integration in their strategic
development projects.
RTAs can nevertheless fail and that in multiple facets. The impact of RTAs on an economy is thus
not conclusive. This study aims to answer questions on whether there is trade amelioration when
before and being member in an RTA. This paper focuses on SADC’s member states’ trade with
Mauritius. For a more concise analysis of benefits from trade for a later section in the paper, trade
creation and trade diversion are explained below.
Trade Creation and Trade Diversion

Viner (1950) theory postulates assessment of welfare effect from an RTA with the explanation of
trade creation, trade diversion and revenue effect. For the purpose of this paper, only trade creation
and trade diversion are considered.
Trade creation occurs when the implementation of an RTA in a country leave supply come from
more efficient producers of products. Trade creation outcome, in theory, is said to be the add value
in welfare. In other words, it happens when consumers enjoys imported goods at lower prices as a
result of fall in price from the elimination of tariffs in the free trade area. The fact that prices are
reduced, hence lower cost, more consumers enter the market as they can now afford to buy goods
of higher quality. Trade creation therefore occurs as low cost member countries displace high cost
domestic producers. Hence, it can be said that a positive consumption effect that benefits
consumers of member countries is present.
Trade diversion on the other hand, means that potentially better efficient producers outside the
RTA are no more the ones supplying a country; as the country has shifted its supply or provision of
goods towards a less efficient producer within the RTA. Lee (2008) stated that regionalism has the
potential of diverting bilateral trade away from countries outside the bloc; hence trade diversion.
This process may lead to the shift of production from low cost to high cost producers; welfare loss.
The consumer now incurs higher cost for the same goods.
Presence of both trade creation and trade diversion in a free trade agreement implies that member
countries experience both positive and negative impacts. Assessment of an RTA should be based on
the net effect of the two, which will determine whether there is a welfare gain or loss. Implementing
very low external tariffs (open regionalism arrangements) could help to lessen the risk of trade
diversion. RTAs may cause changes in the world welfare depending on the relative degree of trade
creation and trade diversion effects.
In addition to that, RTA impact on welfare can be categorized into two types; static effects and
dynamic effects. Both effects usually result in a gain when there is a reduction in costs, increase in
bargaining power, investment incentives in countries due to decrease in tariffs amongst others. Static
effects are ways to gain when the country takes advantage of differences in factor endowments,
market power and their availability of technologies. It is similar to arbitrage theory and the countries
may generate gain from economies of scale, efforts towards product differentiation and constantly
innovating products. The dynamic effects usually broken further into two types, namely;

competition effects and scale effects, demands more efforts for gains. Many researchers state that
dynamic effects are the incentive to join in RTAs. These effects comprise of higher production
efficiency resulting from decrease in average production costs because of increased competition. The
countries are forced to decrease cost via for example economies of scale. Other dynamic methods to
gains are increase international investment by increasing investment opportunities, expand market
scale, constantly improving technology in production.
A country open to trade is forced to continuously innovate to remain competitive. Increased
economic integration with the outside world adds to technological innovation through trade of
technologies from developed countries, like Japan. Krugman (2003) stated that once poor countries
made their way to a better economy with globalisation.
Empirical review
Grossman and Helpman (1994) showed that integration with the world economy can boost a
country’s productivity. Productivity and economic growth through integration or trade applies to
developing countries as well as industrial countries. The two largest poverty stricken populations,
China and India, have achieved productivity and economic growth during the last two decades with
open trade. Thus, theory matches actual trends and results. The connection between trade and
growth is said to be positively correlated, but reducing trade barriers do not always have nice impact.
Scitovski and Scott (1970) and Balassa (1971) were first to address this negativity. However, studies
like; Dollar (1992), Sachs and Warner (1995) and Ben-David (1993) persists on positive correlations
between a country’s openness and faster economic growth.
Both before and after engaging in regional corporations, are liable to praises and critics. Different
studies brought different results. Jacob Viner (1950) is the first one who considered analysis on trade
patterns with regional blocs and his conclusion was that benefits or gains from RTAs are dependent
upon trade creation and trade diversion. Furthermore, Johnson (1960) explained that welfare from
trade creation and diversion may leave the country better or worse off. Both sides are probable
which he explained from a partial equilibrium diagram illustrating the economic effects, good and
bad.
The most common tests carried on Regional Trade effects on countries is the Gravity model. It was
proposed by Tinbergen (1962) to explain international bilateral trade and used it to determine the
factors affecting trade patterns. Aitken (1973) used that same model for analysis on RTAs. Most

esearchers who used the model have ended saying that RTAs are trade creating. The extent of
welfare gained by member states depend on certain variable used in the equations and other factors
which vary from countries to countries, for instance economic structure of a country. Hence, it
depends on the data gathered and variable opted for in the model (Burfisher et al. (2001)).
Magee (2003) had used simultaneous equations model to show empirically that with high bilateral
trade, countries have their profitability boosted up and hence will encourage creation of agreements.
Consideration was also made where increase in trade might be linked to historical and political issues
amongst them and not only due to creation of corporations. Bayoumi and Eichengreen (1995)
confirmed the above results.
Not only the data and variables that are dealt with, but the sample of countries chosen also,
determined the extent of accuracy in results. Pomfret (1997) have exposed a variety of conclusions
upon trade effects using the gravity model and left with no flow, hence inadequacy in the model
approach. Haveman and Hummels (1998) accorded that conclusions on the predictions of trade and
the effects of trade, with or without regional corporations, vary greatly with sample differences. In
addition, Ghosh and Yamarik (2004) approved that model results are sensitive to the variables
included in the equation. They tested the sensibility of the model by utilizing different samples and
found that the numbers of RTAs that are trade creating with a sample are not with another sample.
Some important and relevant studies are discussed below.
Venables (1999) tested the benefits and costs of a free trade area on member states. He used a
generalized Heckscher-Ohlin model whereby assuming same level of technology prevails but with
different labour types, skilled and unskilled, based on their comparative advantage. As a whole, his
results showed that developing countries were more capable to exploit the free trade agreements.
Soloaga and Winters (1997) argued on trade diversion existence in EU and EFTA 2 . They used
annual non-fuel data for 58 countries from 1980 to 1996 which represented around 70% of total
world imports at that time. General results were that they found that the imports of both
organisations were lower in 1995 to 1996 than in prior period. They worked with three sets of
dummy variables for each trade bloc. They considered intra bloc trade, one bloc recording imports
by members from all countries, including nonmembers, and another one taking exports by bloc
members only to all countries, including nonmembers. The first dummy represents the effect of a
2 European Free Trade Association

PTA on members’ trade and the two last dummies suggest the degree of imports and exports as a
whole. They tested for changes in the trade flows before and after the implementation of blocs and
concluded that no great changes in intra trade were noticed. Hence, the tendency of intra- bloc trade
remained nearly unchanged both before and after creation of blocs.
Rahman (2006) focused on the trade diversions between developed and developing countries and
considered several RTAs, laying emphasis on SAFTA. He worked with the gravity model and panel
data was adopted with country pair fixed effects and year specific fixed effects. He captured the time
dimension and cross section specification of the data by using two-stage estimation method. The
conclusion was that significant intra bloc export creation was present plus also net export diversion
in SAFTA.
Chong Wha Lee (2008) tested the relationship or degree of relationship between trade creating and
trade diverting effects of some RTAs. The author used the panel data, dividing observations into
five years for the period 1950 to 1999. His study arrived at distinctive results. First one being that
trade creating effects were found in five (EC, CACM, MERCOSUR, ASEAN, and SPARTECA) of
the set of RTAs taken. He also arrived at concluding that trade creating effects were at a declining
rate in EC, CACM, MERCOSUR, and ASEAN. He added to that, countries ignore their differences
and over stated the positive effects of RTAs. The last point he made is that EU and NAFTA were
quite close to trade compared to other RTAs such as ASEAN and MERCOSUR.
Coulibaly (2006) laid emphasis on six developing RTAs; ECOWAS and SADC in Sub- Saharan
Africa, AFTA in Asia and CACM, CAN, MERCOSUR in Latin America, and two developed RTAs;
EU and NAFTA. Data as from 1960 to 1996 was taken for comparison of the positive effects and
trade levels between the developing and developed RTAs along the years. Gravity model combined
with kernel and bootstrap estimation techniques was used. The author found that welfare impacts
differed between younger and mature RTAs. He stated that AFTA, CAN, MERCOSUR, NAFTA
and SADC which were new at that time had positive impacts in their infant years. On the other
hand, older RTAs such as CACM, ECOWAS and EU at that time have had more volatile welfare
impacts. The latter added that trade and welfare impacts of both developing and developed RTAs
have had no uniformed evolution.
Brown (2005) discussed that agreements have an impact on economic, social and political climates
of a country. He considered the EU for his study and found that imports were now cheaper and
exports were more profitable with agreements. This leads to the creation or the continuation of

foreign direct investment in a country, hereby enhancing economic growth, improve balance of
payments and may even bring new skills and technology.
A more recent research is carried in the Western Hemisphere by Muhammad and Yucer (2010).
They studied on how the welfare effects of RTAs are dependent on trade creation and trade
diversion generated. They took 38 countries with six RTAs in the Western Hemisphere for 1986 to
2005. They used the gravity model based on Santos Silva’s and Tenreyo’s (2005) Poisson Pseudo-
Maximum Likelihood (PPML) method. According to them they got more accurate results about
trade impacts compared to the PPML. Their estimates showed that trade creation was positively
significant except for NAFTA and LAIA and that trade diversion effects of these two greatly varied.
In addition to that, while NAFTA, LAILA and MERCOSUR had a remarkable trade diversion
effect, ANDEAN and CACM had a positive significant trade diversion coefficient. After
considering their analysis, conclusion is that RTAs do not only help countries to enhance their trade
movements and relations between members but also improve or contribute to the world trade.
SADC
This concept of regional integration was created with the vision of ensuring economic well-being,
improvement of the standards of living and quality of life, freedom and social justice. SADC was
first introduced when the Head of States or Government decided to formalize the Southern African
development Coordinating Conference (SADCC) which had as first name Southern Africa: Towards
Economic Liberation. This declaration had at that time the aim at economic liberation and
integrated and equitable development of the economies of the region. The SADCC turned out with
a legal existence in August 1992, and is forth named as the Southern African Development
Community (SADC). In the 2000 Ordinary Summit, a protocol to establish the tribunal was signed
in Namibia. The tribunal was to onwards ensure the proper usage and understanding of the SADC
treaty and remedial actions upon disputes that may occur. The SADC treaty was amended in August
2001 by the Head of State and Government and the protocol was subject to amendments in
October 2002.
In 2008, SADC joined the Common Market For Eastern and Southern Africa and the East African
Community to form the African Free Trade Zone. As such, SADC subscribed to create a single free
trade zone composing of 26 countries. Moreover, the SADC trade protocol of 2000 which

pronounced the reduction of custom duties is to be carried forward to further reduction to around
85% of tariff lines by 2008 and on tariffs on sensitive products being eliminated by this year.
SADC has had 15 member states but after the coup d’état Madagascar was suspended, hence SADC
has 14 active member states presently; Angola, Botswana, Democratic Republic of Congo, Lesotho,
Malawi, Mauritius, Mozambique, Namibia, Seychelles, South Africa, Swaziland, Tanzania, Zambia,
Zimbabwe.
AFRICAN RECS AVERAGE EXPORTS TO THE REST OF AFRICA IN US$
MILLIONS, 2000-2008
At the global level, Africa’s share in global exports increased from 2.4 per cent in 2000 to 2.9 per
cent in 2008, but averaged about 2.5 per cent between these periods. On the import side, Africa
constituted only 2 per cent of total world imports over the same period. These statistics confirm
Africa’s infinitesimal share in global trade (UNECA, 2010).
Africa is increasingly focusing on regional integration as a strategy for achieving sustainable
economic growth as there is a consensus that by merging its economies and pooling its capacities,
endowments and energies, the continent can overcome its daunting development challenges.
However, there are still a number of constraints and challenges facing regional trading blocs in
Africa.
Intra-REC trade in particular and intra-African trade in general, is generally low. African countries
in general tend to trade more with countries outside the continent than among themselves. The
most important trading partners are the EU and USA, although China in particular and Asia in
general are increasingly also becoming important destinations for Africa’s exports and sources of its
imports.
As figure xx illustrates, on average, countries within CEN-SAD (The Community of Sahel-Saharan
States) registered the highest exports beyond their borders to the rest of African countries, followed
by SADC, ECOWAS (Economic Community of West African States), UEMOA (West African
Economic and Monetary Union) and COMESA.
Figure xx RECs Average Export Share to the Rest of Africa, US$ million, 2000-2008

Further, we note that the RECS’ major export destinations are the EU and USA, which constitute an
average of 57 per cent of the exports of the African RECs. For some RECs, the EU and USA
comprise more than 60 per cent of their export markets (see table). For RECs such as IOC and
UMA, about 80 per cent of their exports were destined, between 2000 and 2008, for the EU and
USA markets. Asia, and China in particular are important export markets for the RECs.
Table: Direction of African RECs’ exports to African and non-African countries in US$
millions, average between 2000 and 2008

Source: UNECA, 2010
AFRICAN RECS AVERAGE IMPORTS TO AFRICAN AND NON-AFRICAN
COUNTRIES IN US$ MILLIONS, 2000-2008
The major sources of imports to Africa lie outside the continent. However, it is interesting to
observe that within CEPGL (Economic Community of the Great Lakes Countries); Africa was a
significant source of imports to the community, representing about 42 per cent of the total imports.
About a fourth of imports by UEMOA also came from Africa. But for the rest of the RECs, the EU
continues to be a major source of imports. This is shown in table 4.2 below.
Table : African RECs average imports to African and non-African countries in US$ millions,
2000-2008

OVERALL TRADE PERFORMANCE OF THE SADC
Source: UNECA, 2010
Since 2006, global exports to SADC increase at a higher rate than imports from the region. Overall,
global imports from the SADC region increase by 140 per cent between 2004 and 2008. The main
products imported by the SADC region globally include mineral fuels, nuclear machinery, iron ore
materials and vehicles. The highest growth imports between 2004 and 2008 are fertilizers, nickel
articles and iron ore articles, with imports of fertilizers growing 347 per cent, imports of nickel
articles growing 301.4 per cent and imports of iron ore articles growing 372 per cent. Overall, global
exports from the SADC region increase by 194.4 per cent from 2004 to 2008. The global export
basket of SADC closely mirrors the import basket, with high growth of exports of mineral fuels (456
per cent), iron ore products (527 per cent) and copper and copper articles (361.7 per cent)
(Trademap, 2010).
The main products traded between the SADC countries are mineral fuels, nuclear machinery and
iron ore products. The growth in the trade of print media such as newspapers, books and pictures
has seen an increase of 395 per cent from 2004 to 2008. Other high-growth products include
cereals, iron ore products, nickel products and mineral fuels.

Figure : Overall Trade Performance of SADC, 2004-2008
SOURCES OF THE SADC AVERAGE IMPORTS IN US$ MILLIONS, 2000-2008
Table : Main Import Sources of SADC, 2000-2008.
SADC
SADC
(%)
Africa 8584.76 11.8
China 5949.47 8.2
Asia 8133.55 11.2
EU 25872.92 35.6
Japan 3922.57 5.4
USA 5713.28 7.9
Rest of World 14590.9 20.1
Total WORLD 72767.4 100
Source: UN COMTRADE Database

Figure : Main Import Sources of EAC, COMESA and SADC, 2000-2008.
DESTINATION OF THE SADC AVERAGE EXPORTS IN US$ MILLIONS, 2000-2008
Table: An Analysis of the Main Export Destinations of SADC, 2000-2008
Main Export
Destinations between
2000-2008 SADC
SADC
(%)
Africa 8,704.9 12.3
China 7,139.5 10.1
Asia 5,184.6 7.3
EU 20,679.4 29.3
Japan 2,672.8 3.8
USA 11,266.5 16.0
Rest of World 14,973.9 21.2
WORLD 70,621.6 100

Source: UN COMTRADE Database
Figure xx: Main Export Destinations of EAC, COMESA and SADC between 2000-2008
The table below gives an interesting comparative percentage share of trade of SADC and non
SADC and shows the relatively low level trade within SADC member countries.
Year
Imports Exports
Total (Rs m) SADC (Rs000) % of SADC Total (Rs m) SADC (Rs000) % of SADC
2005 93,282 9,619,469 10.31 59,095 4,385,816 7.42
2006 115,502 9,899,775 8.57 68,966 5,064,698 7.34
2007 121,037 11,692,049 9.66 64,265 6,708,746 10.44
2008 132,165 13,232,380 10.01 59,015 6,615,338 11.21
2009 118,444 11,973,066 10.11 56,162 7,370,816 13.12
2010 134,882 13,517,218 10.02 61,990 8,217,470 13.26
INTRA TRADE:
SADC patterns of Trade
As shown in the table below, the shares of exports and imports to the SADC members over the
period 2000 to 2011 vary greatly. The table was constructed by considering the total imports and

exports of each country over the period 2000 to 2011 and compared to the overall imports and
exports of all fourteen countries over that same period.
Row Labels Exports (%) Imports (%)
Angola 0.61 0.04
Botswana 0.20 0.10
Congo, Dem. Rep. 0.06 0.10
Lesotho 0.26 0.21
Madagascar 54.57 6.41
Malawi 0.29 0.27
Mozambique 0.90 2.06
Namibia 0.06 0.20
Seychelles 8.32 3.86
South Africa 31.20 80.58
Swaziland 0.05 2.16
Tanzania 1.26 0.56
Zambia 0.46 2.32
Zimbabwe 1.77 1.15
Table 4.
Madagascar and South Africa dominate trade with 54.6% and 31.20% of SADC exports over the
period respectively. However as mentioned earlier, Mauritius’ overall world exports fails to countries
in SADC as exports are concentrated elsewhere than in SADC. The SADC falls well behind that of
EU for example. The products are supported by several initiatives, namely Everything But Arms
(EBA) initiative, the Lome Convention amongst others. Some countries may have preferential
market access in the EU. In addition to that, Mauritius flow of exports is more often dealt with in
COMESA than in SADC. Nonetheless back to the consideration of SADC only, it is to be
mentioned that Madagascar was expelled during that period, and yet stayed the first ranked of
importing from Mauritius. The second best in exports is South Africa, clearly seen from the table.
In Imports, both countries are still the two best ranked. South Africa with a highly differential
percentage compared to the others (80.58%) and Madagascar laying far behind but yet the second
best ranked at 6.41% of imports to Mauritius. Again, the analysis of patterns of trade for Mauritius

should not be restricted to import volumes in SADC only but should also consider other RTAs as
imports may be more significant in other RTAs.
Hence it should be noted that both Madagascar and South Africa was relatively more important in
exports and imports to the region in that period as compared to the other member states whose
percentage of total trade in the region for Mauritius are very low.
INTRA-REC EXPORT TRENDS IN US$ MILLIONS, 2000-2008
In general, intra-REC exports have been growing in value across most RECs. On average between
2000 and 2007, the top five RECs in intra-REC exports in value terms are CEN-SAD (25 per cent),
SADC (25 per cent), ECOWAS (17 per cent), COMESA (12 per cent) and UMA (7 per cent). The
RECs that traded least among themselves, at 1 per cent or less, on average between 2000 and 2007
are CEMAC, ECCAS, CEPGL and MRU (UNECA, 2010).
Figure : Intra-REC exports 2000-2008 (in US$ millions)
As far as COMESA, SADC and EAC are concerned, their trend of intra-REC exports from 2000-
2008 is shown in Figure below. Our data confirms that SADC intra-exports potential is much
higher than that of COMESA and the EAC.
Figure xx EAC, COMESA and SADC intra-exports between 2000-2008

Table: Share of Individual Country’s Exports in total Intra-Exports within SADC, 2000-2008
SADC 2000 2001 2002 2003 2004 2005 2006 2007 2008
Angola 0.2 0.04 0.9 0.1 10.6 11.6 8.9 32.1 8.7
DRC 0.2 2.3 0.6 1.0 1.1 1.3 1.6 3.1 3.8
Madagascar 0.5 0.7 1.2 3.2 1.3 0.6 0.4 0.4 0.5
Malawi 1.2 1.3 4.3 4.5 4.5 5.0 4.1 3.6 4.1
Mauritius 2.2 3.0 7.6 8.1 5.7 5.8 3.9 3.8 4.3
Mozambique 3.0 4.1 12.8 12.3 11.6 15.2 11.5 10.2 12.2
South Africa 73.7 76.4 n/a n/a n/a n/a n/a n/a n/a
Tanzania 1.2 0.9 5.5 4.9 5.2 6.9 4.7 3.8 4.3
Zambia 6.8 7.2 22.8 21.8 30.7 26.7 53.4 19.6 31.0
Zimbabwe 10.8 4.0 44.4 44.0 29.2 26.9 11.5 23.3 31.0
Total 100 100 100 100 100 100 100 100 100
Source: UN COMTRADE Database
INTRA-REC IMPORT TRENDS IN US$ MILLIONS, 2000-2008
Figure provides data on the value of intra-REC imports in $US millions. As in the case of exports,
intra-REC imports also have witnessed a growing trend in value across most RECs. On average,
between 2000 and 2007, the top five RECs in intra-REC imports were CEN-SAD (26 per cent),
SADC (25 per cent), ECOWAS (17 per cent), COMESA (12 per cent) and UMA (7 per cent). The
same RECs also dominate intra-REC exports. On average, between 2000 and 2007, the most
significant importing countries among these top five RECs in terms of intra-community imports
were:

•CEN-SAD: Egypt (24 per cent), Nigeria (16 per cent), Morocco (15 per cent) and Tunisia (11 per
cent);
•SADC: South Africa (69 per cent) and Angola (9 per cent); and
•ECOWAS: Nigeria (40 per cent), Liberia (14 per cent), Ghana (11 per cent) and Cote d’Ivoire (9
per cent)
Figure: Intra-REC imports, 2000-2008, in US$ millions
With regards to COMESA, SADC and EAC, their trend of intra-REC imports from 2000-2008 is
shown in Figure below. Our data confirms that SADC intra-imports potential is much higher than
that of COMESA and the EAC.
Figure: EAC, COMESA and SADC intra-imports between 2000-2008, US$ million

SADC and Mauritius
Mauritius, being one amongst the developing countries, has been an active member of WTO since 1
January 1995 3 . Mauritius as a developing economy benefits from the MFN rules. Mauritius is
actually a member of three RTAs in force. Moreover Mauritius find itself engaged in other
agreements; such as the Indian Ocean Commission (COI), Cross Border Initiative (CBI) and the
Indian Ocean Rim Association (IOR-ARC); (Figure 3).
Figure .
As an affiliate to RTAs, Mauritius expects a welfare gain. This has lead Mauritius to sign different
agreements which differs in the conditions of trade. This is pointed out in the “spaghetti bowl”
phenomenon by Bhagwati (1993). Recently, Mauritius has negotiated an agreement; Eastern
Southern Africa (EPA), with the EU which came into force in May 2012. The EU is an important
trading partner for Mauritius and Mauritius greatly benefits from the EU Protocols on sugar.
According to statistics, the EU is the main export market for Mauritius as it comprises of 63.7% of
total exports in 2010.
By main destination (2010) Exports (%)
3 Source from WTO site.

European Union 63.7
United states 10.9
Madagascar 5.5
South Africa 4.5
Switzerland 1.8
Table 1.
By main origin (2010) Imports (%)
European Union 22.9
India 22.3
China 13.3
South Africa 8.4
Japan 3.3
Table 2.
The main export commodities for Mauritius are textiles, garment products and sugar. Mauritius not
only benefit from the MFN tariffs but also gain highly from the Cotonou Sugar Protocol that
guarantees the purchase of 507,000 tons of sugar per annum at an established price. Mauritius has
diversified its trade with the EU significantly; it expanded its exports basket to textiles, garments,
and even aircraft parts. Mauritius is very dependent on the EU market and on EU preferences for
sugar. Even though a non-reciprocal trade relation persists between Mauritius and EU, Mauritius,
classified as a middle-income country, still gain from their transactions. In recent past, Mauritius
thought upon negotiating a “Southern-Eastern Africa EPA” that contains mainly COMESA states
but excludes SACU countries. Mauritius undertook that action to improve trade or market relations
with COMESA members. By that action, Mauritius showed an aversion to adopt the EU South
Africa liberalisation schedule. Mauritius economic healthiness is threatened by increasing worldwide
competition and limited protection options in trade. The EU brought the requirement for “double
transformation” to help African, Carribean and Pacific countries (ACP) on market. However, this
was not really helpful to Mauritius.
Moreover, the reform of the European Common Agricultural Policy (CAP), which is to lower
subsidies on specific crop production, if implemented, will result in a negative effect on Mauritius; as
the value of the Protocol commodies will be reduced. In addition to that, the European “Everything

ut Arms” (EBA) scheme gave all least developed countries (LDCs) a duty free market access on
sugar since 2009 and this leads to an increase in competition in the EU market. Mauritius again
suffered a negative impact on its market share. Hence in Mauritius history, EU helped the growth of
Mauritius.
Mauritius is an example of countries that have interests in SADC. The trade transactions of
Mauritius are frequentius in COMESA countries compared to SADC countries. Mauritius receives
8.4% of its total imports from South Africa. However, South Africa is not perceived as an attractive
destination for Mauritius exports. The reasons are Mauritius faces substantial barriers on trade and
its main export commodities are regarded as sensitive in the SACU. Although, it cannot be ignored
that Africa is one of the major investor in Mauritius.
SADC lacks importance in Mauritius compared to COMESA as the trade of its main products is not
that much solid in SADC. The range of products traded in COMESA has changed much through
the period 1980 to 2002. Mauritius has increased its trade considerably since that period by around
30%. Pondering over COMESA, Mauritius has been a member of the Preferential Trade Area
before COMESA. Mauritius gained from the Free Trade Area in 2000, which exclude all customs
duties on imports from COMESA members. Mauritius was already heading from sugar industry to
textile industry and yet the fact that Mauritius benefits from trade in COMESA still persists. This
statement is proven considering the main trading partner for Mauritius lies in COMESA.
Madagascar imports around 75% of Mauritius total exports and Egypt, is 29% approximately of
Mauritius total imports. Moreover any decisions taken in COMESA custom union benefits
Mauritius. The export markets of Mauritius are still undiversified in COMESA compared to the EU.
The export rate is made up of only 6.8% in COMESA. As mentioned earlier, trade volume increased
since the time Mauritius entered into the agreement. Moreover, Mauritius was one among the five
chosen countries to promote the project of Trading Houses. Mauritius will enhance its
competitiveness on the services market; beneficial.
Concerning the Indian Ocean Commission (COI), Mauritius was member since foundation. This
small organization is also known as the Commission de l'Océan Indien in French caters for the
cooperation between Comoros, Madagascar, Mauritius, Reunion and Seychelles. The main idea of
the foundation was to promote trade and tourism. Not much research was carried on this agreement

ut it can be said that it does not have enormous impact on the GDP of Mauritius. However,
Mauritius finds itself in a better place with its projects and laws.
Cross Border Initiatives (CBI) was agreed by the Minister of Foreign Affairs. Recently, food security
was highlighted in Mauritius and a project came up. This was idealized on agricultural cultivation
outside of Mauritius for its citizens with a budget of Rs1 billion in 2009.
This negotiation has not only smoothened the relationship with foreigners but also encourage trade
flows. Moreover, Mauritius has the opportunity to rent the land acquired to other investors. Cross
Border Initiatives facilitates the movements of people among the countries. Mauritius was no
exception not to follow the trend to invest in outside economy for agricultural cultivation. Not to
mention that the agreement also takes into consideration social factors like; child exploitation and
human trafficking. Hence this agreement benefits go two ways; the host and the foreign country.
With this kind of integration, Mauritius does secure its social stability which enforces the economic
and political stability; thus its growth has achieved reached a long term base.
Mauritius is engaged in the Indian Ocean Rim-Association for Regional Cooperation (IOR-ARC),
also known as the Indian Ocean Rim Initiative, for quite a long time. This initiative allows
information flows to positively influence trade and investment. This agreement also favors mutual
interests, growth and development. Trade flows had increased in goods, services and even scientific
and technological sharing, as Mauritius gains from reduction and eradication of some barriers.
Mauritius participates in the projects undertaken by the organization. Mauritius enjoys good
cooperation and liaison settled by the initiative. Not to forget that Mauritius highly benefits in terms
of trade and growth from being member in this region.
Mauritius was welcomed as the twelfth member at the Annual Conference of the (Inter-state
Defence and Security Committee) ISDSC that was held in Lilongwe during October 1996. Mauritius
gained a lot of international experience as from its dependence and is now an export oriented unit.
Being a member of SADC for the few years, it is now an exemplary country that provides an
excellent case study of the economic achievements that are possible through outward-oriented trade
policies. The topic of interest for Mauritius in SADC is acutely based on textiles and garments.
Mauritius is one of the few manufacturing sectors in which there is significant production in a
number of member countries. Mauritius was since long time known for its hand make production;

workforce. The difference in the workforce degree and other determinants of comparative costs,
amongst member states, at the different stages in the industry means that there exist some sections
that can be exploited altogether (through trade initiatives). Consequently, this may enhance the
region’s global competitiveness. This is where Mauritius showed its capacity and laid the region’s
potential.
Opportunities for Mauritius to set strategic alliances through the Africa Growth and Opportunities
Act (AGOA) have recently exploded. Mauritius needs, at the earliest, to remedy its domestic and
regional weaknesses to better exploit the American market while taking advantage of SADC
underutilized textile plants. Mauritius being one of the dominant players in the textile and garment
sector of SADC has led to different objectives towards interests and approaches to SADC.

SADC Members 1970 1975 1978 1988 1990 1992 1995 2000 2005 2010
Import 2.819 0.923 3 4 6 8 9 10 10 1977.472
Angola
Export 0 0 2 3 6 7 7 35.656 1916.575
Total 2.819 0.923 5 7 12 15 16 10 45.656 3894.047
Botswana
Congo
Lesotho
Madagascar
Malawi
Mozambique
Namibia
Seychelles
South Africa
Swaziland
Tanzania
Zambia
Zimbabwe
Grand Total
Import 3 5 6 6 6 7 7 12.581 381.428 27.481
Export 60 80 80 80 90 90 90 681.098 150.038 106.902
Total 63 85 86 86 96 97 97 693.679 531.466 134.383
Import 6.33 4.00 7.00 558.57 491.57 185.57 185.90 6.64 19.00
Export 30 34.00 38.69 66.62 459.78 45.27 24.00 4.00 8.00
Total 30 40.33 42.69 7.00 625.19 951.35 230.83 209.90 10.64 27.00
Import 0 56 34 34 434 34 5 5 779.286 2037.939
Export 3 3 3 5 5 5 6 6 0 0
Total 3 59 37 39 439 39 11 11 779.286 2037.939
Import 1512.237 2662.187 1209.952 3579.072 11723.3 15583.97 20340.15 33485.41 14758.28 18466.53
Export 216.205 165.686 219.152 2076.004 9660.502 15138.2 39798.93 76077.54 40777.59 47012.01
Total 1728.442 2827.873 1429.104 5655.076 21383.8 30722.18 60139.08 109562.9 55535.87 65478.54
Import 0.809 7.175 59.749 671.076 421.924 310.379 129.232 1091.474 84.737 1479.613
Export 11.16 1.48 13.353 38 136.148 133.838 525.627 1256.885 125.256 184.433
Total 11.969 8.655 73.102 709.076 558.072 444.217 654.859 2348.359 209.993 1664.046
Import 31.227 529.329 343 234 47.398 144.258 119.539 1932.181 15590.03 3987.792
Export 6.194 0 5.533 0 1.144 1110.463 193.714 958.086 783.393 1286.569
Total 37.421 529.329 348.533 234 48.542 1254.721 313.253 2890.267 16373.42 5274.361
Import 50 100 130 140 160 180 210 270.907 308.017 949.311
Export 0 1 8 8 9 8 11 8.681 42.089 134.01
Total 50 101 138 148 169 188 221 279.588 350.106 1083.321
Import 215.082 350.344 530.702 454 95.874 1190.437 228.761 962.17 9531.7 13909.6
Export 37.806 1192.475 607.637 963.859 3210.592 2653.202 2601.462 5487.792 5572.723 8823.775
Total 252.888 1542.819 1138.339 1417.859 3306.466 3843.639 2830.223 6449.962 15104.42 22733.38
Import 6808.213 32085.17 58560.43 110503.8 148802.9 232188.8 225567.6 309354.1 270782.2 370538
Export 1873.451 3136.947 6168.379 4745.152 6755.176 12276.22 6798.884 8956.243 18337.5 72211.29
Total 8681.664 35222.12 64728.81 115249 155558.1 244465.1 232366.5 318310.3 289119.7 442749.3
Import 1200 2455 3345 3676 3600 3967 4700 5934.701 6602.039 8486.699
Export 9 22 26 26 26 26 30 709.232 4.765 0.359
Total 1209 2477 3371 3702 3626 3993 4730 6643.933 6606.804 8487.058
Import 204.674 23.254 150.283 176 425.673 1643.242 1611.453 980.388 2615.564 3501.441
Export 0 0 46.58 60 81.236 629.348 936.839 2466.208 1575.435 491.221
Total 204.674 23.254 196.863 236 506.909 2272.59 2548.292 3446.596 4190.999 3992.662
Import 12.675 6.277 0.865 1 15.106 0.789 12.036 188.644 8608.924 6273.059
Export 21.453 308.604 348.941 354 293.412 1076.758 251.385 139.872 380.853 125
Total 34.128 314.881 349.806 355 308.518 1077.547 263.421 328.516 8989.777 6398.059
Import 1 7 8 55 2685.837 4120.532 9030.824 6790.873 2848.988 6737.36
Export 2000 2500 2904 3000 3205.709 3617.519 6608.415 5784.288 786.803 1077.147
Total 2001 2507 2912 3055 5891.546 7738.051 15639.24 12575.16 3635.791 7814.507
Import 75580.74 330672.8 498367.9 1286005 1686320 1773675 1985819 2078052 3152118 4379043
Export 67531.41 294594.8 320222.9 997519.9 1220503 1335501 1537690 1489616 1560305 1489806
Total 143112.2 625267.6 818590.8 2283525 2906823 3109176 3523509 3567668 4712423 5868850

Mauritian exports to the SADC member states had experienced a steady moving from 2000 to 2011.
This upward and downward trend is expected to continue with new policies of reducing or phasing
out tariff by SADC countries. Some of the commodities that are dealt with for Mauritius are Fabrics,
T-shirts, Jerseys, Soaps, Wheat pellets, Baby Napkins, Sunglasses, Cotton Fabrics, Food
preparations Chemicals, Printed books, and Articles of plastic.
The increase in exports to South Africa was mainly linked to non-industrial diamond, which covered
of about 40% of total export earnings in 2003. The main products, 33% of total exports to South
Africa, were textiles and garments. Other products such as baby napkins, soaps, printed books and
sunglasses were also highly considered in exports considerations. Under the SADC protocol, tariffs
on cotton fabrics have declined from 30% to 25% when exported to Mozambique in the region and
duties on fertilizers have reduced to nil in 2000. Exports to Tanzania rose significantly just after the
20 th century. Namibia has also experienced an increase in exports due to the exportation of
machinery (98% of total exports in 2003). For other countries such as Botswana and Lesotho,
exports to these have decrease over the years up till now. The reason is that the main exporting
products have lost market share, despite the fact that new products, for instance paper and
paperboard labels, were exported. The agreement on tariff phasing-down plan was made in the year
2000 in respect to imports from all SADC member states, except for imports from South Africa
which started in early of 2003. Plan adapted to sensitive products began in 2008. It is to be noted
that South Africa remained the major trading partner in SADC region, and for Mauritius. Imports
from member countries, to be precise Mozambique, Namibia, Botswana amongst others, has gained
momentum in the period considered above (2000 to 2011). Digging down to history, the increase in
imports from Botswana was linked mainly to the bovine meat, Mozambique increase of exports to
Mauritius was due to the fact that tariff on coal has reduced significantly over the years, Namibia
because of the increase in the imports of frozen fish amongst others. There is a fundamental point
to be exposed; the increase in imports in 2004 is mainly attributed to the imports of jet fuels and
motor spirit which is not related to the tariff phased down approach.
METHODOLOGY
In this section, we try to evaluate the link between SADC exports and SADC economic growth,
through a regression analysis. To model the growth effects of trade in the SADC region, a classical
economic growth function was extended with standard control variables such as investment,

education, labour, financial development and trade openness. This is consistent with works from the
literature (Barro, 1991; Mankiw, Romer and Weil, 1992; Benhabib and Spiegel, 1994; Levine and
Renelt; 1992, Levine et al, 2000 among others & Seetanah and Khadaroo, 2008). More importantly
for the sake of this study the SADC exports has been decoupled into exports of SADC countries to
their member states and into exports to other non-SADC countries. This will permit us to gauge the
effect of SADC trade on economic development. The implied theoretical model is thus
Y = f ( IVT,
EDU,
LAB,
FD,
SADC,
NONSADC)
(1)
Y denotes the respective SADCmembers economy’s output (measured as the real Gross Domestic
Products at constant price in US$), IVT is the level of investment in the country (measured as the
investment ratio), EDU is the level of literacy and quality of labour (measured by the secondary
enrolment ratio), LAB is the labour force (measured as the number of people in employment), FD is
the level of financial development (measured by the ratio of liquid Assets to GDP), SADC is the
amount of export to SADC member states and NONSADC is the amount of export to NONSADC
countries (both measured as a percentage of GDP). The data series for OUTPUT, IVT, FD were
generated from the International Financial Statistic (IFS) various yearbooks, the secondary
enrolment ratio from the World Development Report (various issues) and the two sets of data on
exports have been constructed from World Trade Analyzer.
ANALYSIS
The Econometric Model and preliminary tests
Recall equation 1 above and taking logs on both sides of the equation and denoting the lowercase
variables as the natural log of the respective uppercase variable results in the following:
y ε
it = β 0 + β1ivtit
+ β 2eduit
+ β3lit
+ β 4 fdit
+ β5sadcit
+ β6nonsadcit
+ it (2)
where β0 is the constant term, β1 , β2 , β3, β4, β5 and β6 represent the elasticity of output relative to
investment , education, labour, financial development, trade to SADC states and trade to
NONSADC states. i denotes the respective countries in the sample and t the time period, that is
1995-2008.

Analysis and Results
Given the limitations of using a single-equation OLS cross sectional regression model and pooled
OLS (see Kennedy, 2003) panel data techniques are used. In this section we employ both static and
dynamic (Generalised Methods of Moments) techniques to gauge the relationship between SADC
trade and economic performance. In fact, use of panel data allows not only to control for
unobserved cross country heterogeneity but also to investigate dynamic relations.
We use the Hausman test to test the use of a random or fixed effect estimator. The Hausman test
tests the null hypothesis that the coefficients estimated by the efficient random effects estimator are
the same as the ones estimated by the consistent fixed effects estimator. The specification test
recommended the use of random effects model. The null hypothesis of homoskedasticity was
rejected at 1% and the last column presents the P(h), the heteroskedastic consistent estimates the
effects coefficients of the extended growth equation specified previously.
It is shown that SADC trade, has had a positive contribution to economic growth of Member states,
although to a much lesser extent as compared to non SADC trade. In fact the coefficient of 0.16, a
measure of output elasticity, means that a one percent increase in SADC trade contributes to 0.16
percent increase in the GDP of member states. It is noteworthy that non SADC trade is much more
important than intra SADC trade for most members (mainly with EU and US). The main
determinant of growth in SADC appear, as expected, investment with labour, education and
financial development being valuable contributors as well.
Table: Panel Data estimates
Dependent variable output = log OUTPUT
Variable Random Effect
Constant
ivt
estimates
0.21
(1.95)*
0.53

edu
l
fd
sadc
nonsadc
R 2
Hausman test
(2.41)***
0.22
(2.23)**
0.28
(2.02)*
0.14
(2.01)*
0.16
(2.25)
0.31
(2.27)***
0.4
Prob>Chi2=0.321
*significant at 10%, ** significant at 5%, ***significant at 1%
The small letters denotes variables in natural logarithmic and t values are in parentheses
Dynamic Panel Data Regression.
To incorporate the dynamic nature of economic growth into our model, we rewrite econometric
equation as an AR (1) model in the following.
y µ
it − yit−1
= α t + νyit−1
+ βxit
+ it
(3)

where yit = the log of real GDP; xit= the vector of explanatory variables, that is x = [ivt, edu, l,
fd,sadc,nonsadc] and αt = the period specific intercept terms to capture changes common to all
sectors; μit = the time variant idiosyncratic error term.
Equivalently, above equation can be written as
y α ( ν y + βx
+ µ
(4)
it = t + + 1)
it−1
We can also write the above in first differences
∆ it = t + + 1)
∆ it−1
it
it
it
y α ( ν y + β∆x
+ ∆µ
(5)
it
A problem of endogeneity might exist if yt-1 is endogeneous to the error terms through uit-1, and it
will therefore be inappropriate to estimate the above specification by OLS. To overcome this
problem of endogeneity, an instrumental variable needs to be used for Δyit-1. Two approaches,
namely Instrumental Variable (IV, Anderson and Hsiao 1982) and two GMM estimators (Arellano
and Bond’s 1991), first and second step respectively, can be used in this regard. We used the latter
technique, as the IV approach leads to consistent but not necessary efficient estimates of the
parameters (see Baltagi 1995). Moreover, the first step GMM estimator will be used since it has been
shown to result in more reliable inferences. The asymptotic standards errors from the two step
GMM estimator have been found to have a downward bias (Blundell and Bond 1998).
The results from estimating equation (5), extended with a lag term, using the Arellano-Bond (1991)
first step GMM estimator are contained in table 4. The various estimated equations passes all
diagnosis test related to Sargan Test of Over-identifying restrictions and the Arellano-Bond test of
1 st order and 2 nd autocorrelation. Note that it has also been argued that since panel data techniques
are employed, the issue of non-stationarity of the variables is less serious (Garcia Mila, McGuire and
Porter, 1996).
Table 4: Dynamic Panel Data Estimation (First Step GMM estimator)
Dependent variable y= log of Y
Variable GMM estimates
Constant 0.005

Δser,
yt-1
Δivt
Δempt
Δfd
Δxpsadc
Δxpnonsadc
Diagnosis tests
Sargan Test of
Overidentifying restrictions
Arellano-Bond test of 1 st
order autocorrelation
Arellano-Bond test of 2 nd
order autocorrelation
*significant at 10%, ** significant at 5%, ***significant at 1%
(2.29)**
0.21
(3.22)***
0.19
(1.99)*
(0.1)
(1.86)*
0 15
(2.16)**
0.11
(2.10)**
0.04
(1.76)*
0.12**
(2.14)**
prob>chi2=0.34
prob>chi2=0.264
prob>chi2= 0.76
The results from the dynamic panel analysis validate the preliminary results in general. We should
highlight that the coefficient of SADC, that is trade to SADC member states, is positive, although
small, but significant, suggesting that it has impacted significantly on the economic growth of the
block. This is in line with the statistics we showed above and highlighted that trade within SADC is
relatively higher than other major African block. On the other hand, trade to SADC countries is

observed to have been very influential to the economic development of the countries in the sample
as judged by its coefficient. Recall from the literature above that Europe is the main importer of
SADC products under the Cotonou agreement and Everything But Arms initiative. Investment,
Education, Labour and Financial development report signs and magnitudes of elasticity as generally
predicted by the literature.
Interestingly the positive and significant coefficient of yt-1 from the table suggests that lagged income
of the country contributes positively towards the current level of y confirming the existence of
dynamism and endogeineity in the modeling framework. This is consistent with recent works from
Li and Liu (2005) and Seetanah (2007).
Is SADC growth conducive for Mauritius?
We also analyse is SADC as been economically beneficial to Mauritius for the period 1978-2010.
Using the same model as previously described and augmented with an interactive dummy (SADC
trade and a dummy which takes the value of 0 before 1992 and 1 after the created on the SADC
block), we accounted for important feedback and endogeneity issues by adopting a VAR framework.
However, before that we tested for the time series properties of our data series.
The Augmented Dickey-Fuller (ADF) (1979) and Phillips-Perron (PP) (1988) unit-root tests reveals
that our variables are all integrated of order 1 (I(1)) and are thus stationary in first difference.
Analysis of cointegration among the six variables was then undertaken using the Johansen Maximum
Likelihood procedure and is based on a VAR of order 2, suggested by the Schwarz Bayesian
criterion (SBC). Both the Maximum Eigenvalue test and the Trace test reveal the presence of one
cointegrating vector.
The estimated cointegrating vector, normalised on output, and the estimated adjustment parameters
are presented in Table below
Table : Estimates of long run parameter
Variables
β t-ratios

y
ivt 0.68*** 3.34
ser 0.27** 2.25
lab 0.31* 1.88
fd
1
0.36*** 2.34
sadc 0.103* 1.82
nonsadc 0.456** 2.12
Sadc * Dum 0.215* 1.84
*significant at 10%, ** significant at 5%, ***significant at 1%
From the table above, of interest to us are the three last variables. Indeed it can be shown, as
witnessed by the significant interactive dummy, that being in SADC has been growth beneficial for
the country. It is noteworthy that probably even prior to SADC trade to these countries in aggregate
had favourable growth benefits although to quite low extent, but it this could have accelerate to
slightly greater extent with the formation of the RTA. However, trade to Non SADC countries is
observed to have a much the greater output elasticity, revealing its relative higher importance as
compared to SADC trade. As confirmed by previous studies, investment is the major driver of
growth with education and financial development being important ingredients as well.
SUMMARY
The paper investigated the relationship between growth and openness for the SADC RTA for the
period 1995-2008. Random effect estimates shows that SADC trade has been growth inductive but
relative less as compared to no SADC trade. The results are confirmed using GMM panel estimates
which moreover suggested the presence of dynamic in the system. The relatively low contribution is
in line with the statistics and highlighted that trade within SADC is still relatively low. Trade to

NONSADC countries is observed to have been very influential to the economic development of the
countries in the sample. One should bear in mind that Europe is the main importer of SADC
products under the Cotonou agreement and Everything But Arms initiative. Investment, Education,
Labour and Financial development report signs and magnitudes of elasticity as generally predicted
by the literature. Interestingly it appears that lagged income of the country contributes positively
towards the current level of output confirming the existence of dynamism and endogeineity in the
modeling framework.
The time series study pertaining to the case of Mauritius revealed that SADC trade had a relatively
small output elasticity as compared to NON SADC trade confirming that trade to the other non
SADC partners, especially EU, is more influential in explaining the Mauritian economic growth.
REFERENCES:
Anderson, T, W & Hsio, C., 1982. Formulation and Estimation of dynamic Models using Panel
Data’, Journal of Econometrics, 18: 47-82
Arrelano, M and Bond, S., 1991. Some Tests of Specification for panel data: Monte Carlo Evidence
and an application to employment equations, Review of Economic Studies :58:277-297
Baltagi, B H (1995), Econometric Analysis of Panel Data, New York:John Wiley
Barro, R.J. and Lee, J.-W., 1993. ‘International comparisons of educational attainment’ Journal of
Monetary Economics, 32, 363-394.
Barro, R.J., 1991. ‘Economic growth in a cross-section of countries’. The Quarterly Journal of
Economics, CVI, 2, 407-443.
Benhabib, J. and Spiegel, M.M., 1994. ‘The role of human capital in economic development:
evidence from aggregate cross-country data’. Journal of Monetary Economics, 34, 143-173.
Blundell and Bond., 1998. Initial conditions and Moments restrictions in dynamic panel data models,
Journal of Econometrics 87:115-144
Mankiw, N.G., Romer, D. and Weil, D.N., 1992, A contribution to the empirics of economic
growth. The Quarterly Journal of Economics, CVI, 2, 407-437.

Rojid S. (2007), “Impact of COMESA Forming a Custom Union – A CGE Analysis”- presented at
the Centre for the Study of African Economies (CSEA) Conference 2007 on Economic Development
in Africa, University of Oxford, March 2007
Seetanah B and Khadaroo J (2008), ‘Transport and economic performance: The case of Mauritius’,
forthcoming in Journal of Transport Economics and Policy
Table 3: TimeLine and Achievements of the Southern African Development Community
(SADC)
Agreement Type Member Countries Date of
Entry in
Force
SADC FTA Angola, Botswana, DRC, Lesotho,
Malawi , Mauritius, Mozambique,
Namibia, Seychelles , South Africa,
Swaziland, Tanzania, Zambia ,
Zimbabwe
Year Type of Achievement
Several Trade Agreements with Third Parties
GDP Per
Capita
(US$)
Total
Population
1980 3, 152 233, 944, 179
2008 The EU is currently negotiating an economic partnership agreement (EPA)
Free Trade Area
2008 Implementation of a Free Trade Area
Trade Liberalisation Process
2003 -SADC Member States committed themselves to a Regional Indicative Strategic
Development Plan (RISDP) among whose goals and target dates is the attainment of

Future Developments
Productive Sectors
a Customs Union by 2010 and subsequently a Common Market by 2012.
-Trade Protocol entered into force in January 2000. The Protocol is in line with
SADC’s overall integration policies and strategies which seek to eliminate obstacles to
the free movement of goods, services, capital and labour and to improve the region’s
economic performance and international competitiveness. The gradual elimination of
tariff and non-tariff barriers will make it easier for traders to market their goods across
borders, for manufacturers to source inputs regionally and add value to their products,
and it will widen options for consumers to buy locally produced goods that are
competitive in terms of quality and pricing
- Category of Goods: A - Immediate reduction of duty to zero upon gazetting of tariff
schedules by Member States; and On average 47% of all goods traded under this
regime by August 2001. B - Gradual tariff reduction over 8 years; and 85% expected
to trade at zero tariff by 2008. C - Sensitive products mainly in areas of security,
health and safety; Constitute 15%; and Tariffs expected to be eliminated by 2012
- A policy framework for technical regulations on standards, which is being put in
place, takes into account the implementation of the World Trade Organization
(WTO) Agreement on Technical Barriers to Trade
SADC is committed to develop closer economic cooperation between its Member
States and this process is ongoing. The SADC objectives of a Free Trade Area by
2008, Customs Union by 2010, Common Market by 2012, SADC Central Bank by
2015, Monetary Union by 2016, and regional currency by 2018 - clearly all have an
economic dimension.
Mining – promotion of mining activities under SADC, investment and private sector
participation

Table: SADC intra-regional exports(%share)
Table : SADC intra-regional imports(%share)

Table: Value of top ten SADC exports for period 2000-2008(US $)
Table: Value of top ten SADC exports for period 2000-2008 (US$ millions)

Table: Value of SADC imports for the period 2000-2008 (US$ millions)
Table: Total value of SADC exports, 1980-2008 (US$ millions)

Source: UNCTAD 2009b
Note: Countries included for each year are not clear
Figure: Direction of SADC exports for period 1980-2008 (% by destination)

Source: UNCTAD 2009b
Note: Countries included for each year are not clear
Table: SADC ECONOMIC GROWTH RATE