Trade Blocs: Relevant for Africa?

African trade blocs are largely pursued for political reasons. The economic effects are dubious: a bloc may well reduce the welfare of its members, particularly if the rest of the world is the marginal supplier. Even if the bloc raises aggregate welfare it is likely to be problematic, leading to a divergence of income levels with the poorer members of the bloc losing. Far from promoting regional trust and cooperation the bloc can then cause tensions between the member countries. An important positive effect is improved product variety. This makes the adjustment of the production structure less painful than is commonly assumed. In Africa there has seldom been clarity on the objectives of preferential trading arrangements. This matters since many objectives (scale and competition effects, improved variety and regional cooperation on infrastructure projects) do not require the formation of a trade bloc. If a trade bloc is set up for political reasons (e.g. to improve security) then it is desirable that it unilaterally lowers external tariffs so as to reduce trade diversion and income divergence.