Intra-industry Trade and Sustainability of Export Competitiveness of Firms in the East African Community

The purpose of this paper is to examine the influence of intra-industry trade as a determinant of the sustainability of export competitiveness of firms in the East African Community (EAC). The study adopted the Grubel-Lloyd Index of intra-industry trade index model. The researcher computed the major trade outcome indicator of competitiveness on the data from 2004 to 2022. The study based on the top ten exports for each country to assess the sustainability of export competitiveness of a country`s overall basket of products as well as the specific sectors. Data was obtained from World Bank International Trade Centre (ITC) and World Bank development indicators. The results indicate that there is an increase in the share of intra-industry trade in some product groups such as Cereals, Plastics and articles thereof, Paper and paperboard; articles of paper pulp, of paper or of paperboard, Beverages, spirits and vinegar, Furniture; bedding, mattresses, mattress supports, cushions and similar stuffed furnishings, Dairy produce; birds' eggs; natural honey; edible products of animal origin, not elsewhere, Articles of apparel and clothing accessories, knitted or crocheted and Plastics and articles thereof for different countries.. However, the results indicate that overall, the EAC countries have very low intra-industry value in Coffee, tea, maté and spices. This is because large amounts of Coffee, tea, maté and spices are exported to other markets but to a small extent traded within EAC. The low intra-EAC trade could reflect the increased informal cross-border trade which is unrecorded, poor infrastructure, increased non-tariff barriers (NTBs) and the cumbersome administrative procedure in the EAC. In addition, the low RCA in other sectors reflect the lack of structural transformation which could explain a given considerable proportion of trade diversion and potential welfare losses in the EAC countries, reducing the sustainability of export competitiveness of firms in the foreign markets. Exporting countries need to take deeper reforms as regards structural transformation to enable firms to integrate into the Global Value Chains (GVCs) to enable them to increase their productivity by reviewing the existing policies to match the changes in the market. There is a need to examine the complicated nature of the EAC economy to further this study’s findings. This study explains the complex nature of the intra-industry trade index as an indicator of sustainability of competitiveness in the EAC using quantitative data and that this complexity has an effect on the export competitiveness in import-oriented countries with less harmonization in their trade policies.