Trade, GDP value adding activities and income inequality in the East African community
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Date
2022
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Publisher
PLOS
Abstract
This paper investigates the extent to which the East African Community (EAC) countries
have developed economically over time and whether income inequality decreases with eco-
nomic growth. The relationship between trade and GDP per capita amongst EAC member
countries is evaluated using the World Bank’s meta-data of development indicators and the
EAC Secretariat’s data spanning from 2000–2019. Convergence in GDP per capita and
inequality are tested using Coefficient of variation (CV) and weighted beta. The results show
that agriculture, manufacturing, trade and repair, construction, and transport and storage
constituted the top five GDP value adding activities, contributing about 38 percent to total
annual GDP. The EAC GDP per capita were diverging in the long run but converging in
short to medium terms, implying increase and decrease in the regional income inequality
respectively. Agriculture, electricity and gas, transport and storage, real estate activities,
public administration, and education were income inequality-increasing sectors. Together
with finance and insurance, these sectors were also positively associated with GDP per cap-
ita. The exports of EAC member countries were found to be highly concentrated in few sec-
tors and destination markets, implying limited diversification of products and markets. In
their quest to diversify, these countries should choose the right mixes of export goods and
services keeping in view of the prevailing market factors in importing countries, such as,
changing taste and demands.
Description
RESEARCH ARTICLE
Keywords
Income inequality, Trade, GDP value, East African community, Economic growth