The impact of regional integration on socio-economic development in Southern African Customs Union countries

Abstract

Regional integration gained popularity and is prioritised globally, especially in developing economies, including those on the African continent. This is based on its potential to accelerate trade, stimulate economic growth, and increase access to basic necessities and to induce a sustainable increase in economic output and improved standards of living. Regional integration in the context of developing economies is entirely implicit. Modern literature observes it as a policy option for dealing with a wide variety of issues related to politics, economic factors, and societal welfare. The SACU, existing since 1910, made several trade agreements globally. The union aims at reducing inequalities, ensuring continuous improvement in the general welfare of the population, and sustainable economic growth. Research, though, indicates that the region persistently reflects poor socio-economic conditions. This is accompanied by limited development in infrastructure, lowly skilled and experienced workforce. Primary sector activities dominate their economies, such as mining and agriculture, high levels of inequalities and poverty. Regional integration was implemented differently in several countries globally, and Africa in particular. The research noted that literature on regional integration and its implications on socio-economic development lacks, especially in the context of SACU. A deficiency was also emphasised the universal measurement of regional integration, which is not standardised. Some research employed single variables as a proxy, whilst some composite indices were also compiled and implemented, suiting the diverse setups and environments. The development measurements, therefore, cannot universally be applied attributable to context-specific concerns, prevalent in regions or countries. This study developed the SACU Regional Integration Index (SRII) because the existing indices on regional integration are limited concerning applicability. Most of the indices established in the literature were developed for specific countries and regions with diverse characteristics from those of the SACU region. In addition to a detailed literature review and closing methodological divergencies, this study evaluated the effects of regional integration on socio-economic development in the SACU countries. The objectives of the study were first, to produce the SACU Regional Integration Index. Second, the study aimed at evaluating the effect of regional integration on various socio-economic development factors listed as economic growth, investments, and the Human Development Index (HDI), inequalities and poverty. Third, the study provided policy recommendations to the socio-economic problems encountered by the SACU countries; and lastly, to implement the proposed SRII as a way of providing policymakers with the actual impacts. The study employed the principal component analysis (PCA) to construct the SRII. The Ordinary Least Squares (LSDV), fixed effects and random effects were employed to ascertain the effect of regional integration on socio-economic development in the SACU countries. The constructed SACU index comprises four dimensions. These are trade integration; productive integration; infrastructure integration; and financial and macroeconomic policies integration. The index revealed that SACU countries are dominated by trade and productive integration. Further analysis of the results indicated that collaboration on the financial and macroeconomic policies is lacking and the infrastructure dimension is lagging in the SACU region. Based on the second objective, the results indicate that regional integration is critical in improving trade openness and HDI, especially in Lesotho, Botswana, and Namibia. The effect of regional integration on real Gross Domestic Product (GDP) growth, inequalities, and poverty reduction was realised in the long run through the interaction of all variables under study. This supported the dynamic effects posited by the dynamic theory of regional integration. It was established that growth, though, in infrastructure is insignificant compared to other dimensions of regional integration. This explains why regional integration was unsupportive concerning stimulating investments in all the economies forming the SACU region. The third objective was to proffer policy recommendations. Several practical policy recommendations emerged from this study, based on the literature findings and review. These recommendations include implementing inclusive development programmes, promotion private sector participation in economic activities, and policies, to boost production capacity in the countries in this region. Based on the fourth objective, this study further recommends SACU as a region, to integrate into the global economy. This can be conducted by participating in global production networks for manufacturing and taking advantage of emerging economies. This would diversify their export markets and their sources of finance development. SACU countries should make regional integration and trade a part of their national and sectoral development plans, ensuring coherent trade and industrial policies. They should also improve their labour, education, social protection, and safety nets. With data availability, this research can be extended to incorporate quarterly data or more years of study. Time-series methods can be applied, such as the Autoregressive Distributive Lag (ARDL) method. This will increase the sample size and the number of observations, which can improve the outcome from the statistical and econometric analysis. Future studies may also evaluate the applicability of the index constructed in this study.