The Chinese Export Displacement Effect Revisited: The Case of the East African Community

• Published date: 01 November 2023
• Author: Christian Elleby,Wusheng Yu,Qian Yu
• Date: 01 November 2023
• DOI: http://doi.org/10.1111/cwe.12452

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

China & World Economy / 4–32, Vol. 31, No. 6, 2023

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*Christian Elleby, Researcher, Joint Research Centre, European Commission, Spain. Email: christian.elleby@

ec.europa.eu; Wusheng Yu (corresponding author), Professor, Department of Food and Resource Economics,

University of Copenhagen, Denmark. Email: wusheng@ifro.ku.dk; Qian Yu, PhD Candidate, Department of

Food and Resource Economics, University of Copenhagen, Denmark. Email:qian@ifro.ku.dk. The opinions

expressed and arguments employed herein are those of the authors and do not necessarily refl ect the offi cial

views of the European Commission.

The Chinese Export Displacement Eff ect Revisited:

The Case of the East African Community

Christian Elleby, Wusheng Yu, Qian Yu*

Abstract

China’s increasing exports have prompted research to examine whether Chinese exports

displace those that originate from elsewhere. In this paper we focus on the growth of

China’s exports to the East African Community (EAC) countries and show how they

have aff ected exports from the European Union (EU). Our methodological contribution

to the literature is a set of total and relative displacement estimates based on diff erent

specifi cations of the gravity model where we control for country–year fi xed eff ects so

as to avoid the error of not accounting for time-varying “multilateral resistance.” Our

empirical fi ndings do not support the hypothesis that Chinese exports have displaced

exports from other countries including those from the EU. These results suggest that

competition in the EAC market has not been a zero-sum game among diff erent exporting

countries.

Keywords: East African Community, European Union, export displacement, gravity

equation, trade

JEL codes: F13, F14, F15

I. Introduction

China’s exports and export share have increased dramatically in recent decades, globally

and in many regional and national markets, including destinations where traditional

exporters have encountered great difficulties in expanding their exports, such as the

African markets. For instance, while the European Union (EU) has managed to retain

its status as one of the most important providers of exports to the African markets, its

importance has diminished, despite its many eff orts to strengthen its long-standing trade

©2023 Institute of World Economics and Politics, Chinese Academy of Social Sciences

Export Displacement Eff ect5

ties with Africa. These eff orts include the EU’s push for the completion of negotiations

on the region-to-region Economic Partnership Agreements (EPA) with various groups

of African countries, a core element of the EU’s “comprehensive strategy with Africa”

(European Commission, 2020).1 The EPAs are intended to replace the various existing

one-way trade preferences granted by the EU with the WTO-compatible free trade

areas between the EU and its African partners (European Parliament, 2012; Jensen

and Yu, 2012). In contrast, the two-way trade linkages between China and Africa have

been strengthened greatly during the same period. While China has increased imports

of resources and mineral products from Africa in recent decades (Besada et al., 2008;

Information Offi ce of the State Council, 2013), exports from China to Africa have also

been rising steadily during a relatively short period, leading to a sizable and increasing

share for China in the African import markets.

As a case in point, we take the East African Community (EAC), consisting of

Burundi, Kenya, Rwanda, Tanzania, and Uganda as the focus of our paper. According

to our calculations based on the reconciled import statistics of Base pour l’Analyse du

Commerce International (BACI) (Gaulier and Zignago, 2010), China’s import share

rose from a mere 3 percent in 1995–1997 to 22 percent in 2016–2018, with import

values growing by 42 percent. During the same period, the EU’s import share dropped

from 35 percent to 11 percent. In broadly defi ned sectors, China appears to have enjoyed

particular success in expanding exports in the manufacturing and machinery sectors

where the EU has held a dominant position traditionally. China is now the single most

important source of imports for the EAC countries.

This quite dramatic change in import sourcing in the EAC (and in other parts of

Africa) raises a number of interesting questions. For instance, from the perspective of

the EAC countries, the obvious question to ask is how increased imports from China and

the relative decline of imports from the EU aff ected the EAC consumers and producers.

From a trade policy perspective, an interesting question is whether the EU–EAC EPA

will lead to a larger EU import share in the EAC. The EPA between the EAC and the

EU was concluded in October 2014 and all the EU member states have since signed the

agreement, but on the EAC side so far only Kenya and Rwanda have signed it, meaning

that the EU–EAC EPA is still not implemented.

In this paper, we do not go into the welfare effects of the changing EAC import

shares. Nor do we analyze the eff ects of trade agreements in general or EU–Africa EPAs

in particular. Instead, we focus on characterizing the relative rise (and fall) of exports

1For recent developments in the EPA negotiations, see https://trade.ec.europa.eu/doclib/docs/2009/september/

tradoc_144912.pdf [online; cited May 2022].