Services trade liberalisation, manufacturing productivity and inclusive growth in the Common Market for Eastern and Southern Africa

Abstract

The study investigated the effects of regulatory restrictions on services exports, downstream productivity and inclusive economic growth in the Common Market for Eastern and Southern Africa (COMESA) region. First, the study utilised the trade gravity model with the Poisson Pseudo-Maximum Likelihood (PPML) estimator to analyse the effects of regulatory restrictions on services exports. The findings of the study showed that restrictive regulations negatively affect exports of business, financial, insurance, telecommunication and transportation services. The findings also indicated that cross-border supply restrictions are associated with significantly lower exports in financial, insurance and transportation services. Further, the findings show cross-modal complementarity in business, financial and telecommunication services and a cross-modal substitution in transportation services. The findings underscore the importance of addressing both general and sector-specific restrictive regulations in boosting services trade and deepening regional integration in the COMESA region. Secondly, the study employed the productivity growth model to examine the effects of regulatory restrictions on downstream productivity in the COMESA region. The findings revealed that regulatory restrictions negatively affect downstream productivity, which is further compounded by weak institutions. Regulatory restrictions on commercial presence were found to negatively impact downstream productivity. Sectoral analyses showed that financial services restrictions positively influence downstream agricultural, manufacturing and services sectors’ productivity. Transportation services restrictions had a negative effect on agricultural, manufacturing and services sectors’ downstream productivity, while telecommunications services restrictions had a negative impact on manufacturing and services sectors’ productivity. The findings underscored the significance of institutional quality in liberalising services trade. Finally, the study engaged the Blundell-Bond/Arellano-Bover system generalised method of moments (GMM) to examine the nexus between services trade regulatory restrictions and inclusive economic growth in the COMESA region.