DO REGIONAL ECONOMIC DISPARITIES PROMOTE REGIONAL VALUE CHAINS? A CASE STUDY OF EAST AFRICA COMMUNITY MEMBER STATES
Authors: Erastus Kainga & Dr. Samuel Muthoga
ABSTRACT
Economic differences impact regional value chain expansion. This study aims to examine how regional economic disparities (RED) affect the development of food and beverage value chains (RVCs) in the East Africa Community’s (EAC) manufacturing sector. The dynamics of regional value chain promotion in EAC’s manufacturing sector are examined using the New Economic Geography (NEG) model. Utilizing secondary data from five member states and the variables; taxes, labor, incomes of executives and laborers, intra- and extra-regional trade, and gross value added. To answer the research questions, regression analysis was used to shed light on (i) the effect of regional economic disparities on the promotion of regional value chains and (ii) the effect of prices on regional value chains. The results indicate that whereas laborers’ pay and taxes have a negative and substantial impact on the promotion of RVCs, disparities have a positive and significant impact on price, intra- and extra-regional trade, executive salaries, and overall promotion of RVCs. This study will help EAC member states maximize their industrialization, economic development, and export performance. The results show that workers need to keep learning new skills to be competitive in the rapidly evolving industrial sector. The manufacturer’s adoption of modern technology and its industrial location are also significant variables. Wages ultimately determine output, and countries with higher worker wages typically have higher levels of intraregional trade. For this reason, protectionist policies must be used for EAC states to increase intraregional trade.
Keywords: Trade diversion, Regional value chains, Regional economic disparities, Intra and extra-regional trade, Price volatility
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