The impact of COVID-19 pandemic on trade balance in the East Africa Community region: evidence from a Pooled Mean Group model

Abstract

AbstractThe COVID-19 pandemic posed an unprecedented shock on the demand and supply chains of commodities, thus, disrupting trade flows globally. Albeit East African Community (EAC) countries reported negative trade balances even prior to the inception of the pandemic; it remains unknown as to whether the situation significantly deteriorated in the pandemic era. This study, therefore, evaluated the impact of the COVID-19 pandemic on the trade balance of EAC economies for the period March 2020–December 2022 using the PMG model. Further, it assessed the differentiated impact of the pandemic on the value of imports and exports. First, the findings revealed the presence of a long-run relationship between COVID-19 and trade deficit/imports/exports in the region. Secondly, whereas the impact of the pandemic on the trade deficit was insignificant in the short run; it was positive and significant in the long run. This suggested that despite the easing of the stringent lockdown measures, countries in the region are still feeling the effects of the pandemic. Thirdly, while the pandemic significantly increased imports in the short run, its impact was insignificant in the long run. Contrariwise, no impact of the pandemic was found on exports. The study, thus, recommends that though current increased controls and surveillance on trade remain inevitable, such measures should be instigated in a manner that does not overly disrupt the normal trade flows. Additionally, EAC countries need to bolster their production chains to guarantee self-reliance which is critical in ensuring that intraregional trade in the region remains buoyant in such challenging times.

Keywords

• C54
• F13
• H12
• COVID-19
• trade deficit
• PMG model