Impact of Regional Economic Integration on African Countries’ Competitiveness

Regional integration has been an important element of policy advice to developing countries since the onset of globalization with economic growth being the desired outcome. Africa is set as one to benefit from integration as it is believed that through integration, it will be able to consolidate the small fragmented economies that are characteristic of African states to one big market size that is able to compete for investments in the global market. This investment is critical for Africa’s development path as it seeks to diversify its economy from agricultural products and extractive minerals to more manufactured goods which are seen to be resilient to fluctuations of prices in the global markets. Moreover, this investment is also important to Africa in developing its physical infrastructure which are key for providing networks for the free movement of goods, people, information and capital and which are currently seen as barriers to trade, which is a very key economic activity in most African countries economy. To benefit from integration, countries must be willing to do away with trade barriers that limit this free movement of commodities. With trade openness, a country is able to promote the efficient allocation of resources, enhancing both local and international competition and allowing for the diffusion of technology and knowledge across the countries. Proponents of integration have argued that integration will help African countries in improving their competitiveness by increasing their market size from the small fragmented economies they currently have (Artige and Nicolini, 2006) while those who oppose argue that African countries are too different in terms of country size, population, level of infrastructure development and market size and that this lack of symmetry will lead to some countries benefiting more than others when they integrate into a single bloc, in this case those countries that are perceived to be most developed ones (Venables, 2006, Krapohl, 2010). It is based on these arguments that this study sought out to find out the relationship and extent at which regional economic integration contributes to a country’s competitiveness. A panel regression random effects model was used to analyse this relationship for 52 African countries across 10 years from the period 2006-2015. The outcome of these results was positive and significant implying that indeed, regional economic integration does have a positive and significant relationship with a country’s competitiveness. To increase robustness of the model and to test for the mediating factor of asymmetry which I generated by calculating the ratio of nominal GDP of countries with the highest GDP for that year, I ran a combined panel regression whereby I included all the independent variables and their interaction and the control variables step by step. The outcome of this model also gave out significant outcome showing that still regional integration has a significant relationship with FDI. However, for the interaction terms, only two variables were significant.