The Determinants of Bilateral Trade within the CEMAC Bloc: Evidence Using the Augmented Gravity Model and the PPML Estimation Technique

Abstract

Due to the relatively low levels of bilateral trade flows observed within the CEMAC bloc as well as the poor rates of economic growth observed in CEMAC member States, the study aimed to examine the determinants of bilateral trade flows within the CEMAC bloc using the Augmented Gravity model as the main theoretical framework. While secondary data for bilateral trade was obtained from IMF’s Direction of Trade Statistics, secondary data for Gross Domestic Product (GDP), population size and investment in fixed capital were obtained from the World Bank’s World Development Indicators and data for distance and CEMAC dummy were obtained from the Institute for Research on the International Economy (CEPII). Using the Pseudo-Poisson Maximum Likelihood (PPML) technique, the results of the study conclude that while GDP of exporting country, GDP of importing country, the existence of a border between exporting country and importing country, population of exporting country, population of importing country, physical capital of exporting country and physical capital of importing country all have positive and significant impact on bilateral trade flows within the CEMAC bloc, distance between exporting country and importing country and the creation of CEMAC as a trade bloc all have negative and significant impact on bilateral trade flows within the CEMAC bloc. Finally, the study recommends that policy makers of the CEMAC trade bloc design and implement policies and measures that are geared towards boosting the GDP of member States, investing in national and regional infrastructural projects, eradicating barriers at their respective borders, investing in the acquisition and transfer of technical and technological skills, harmonizing regional financial, economic, legal and trade policies and improving the business (investment) climate.

Keywords: Bilateral Trade, Economic Growth, Augmented Gravity Model, CEMAC, PPML.

DOI: 10.7176/JESD/11-16-09

Publication date:August 31^st 2020