A Disaggregated Analysis of Product Price Integration in the Southern African Development Community

balchin, neil ; edwards, lawrence ; sundaram, asha;

Price-based empirical evidence on the extent to which product markets are integrated in developing regions is noticeably limited, particularly in Africa. This article uses highly disaggregated retail price data for twenty-four narrowly defined products collected at the district level in four Southern African Development Community (SADC) countries (Botswana, Malawi, South Africa and Zambia) to assess the extent to which product prices are integrated within and between these countries.We find evidence of large and persistent absolute deviations from the law of one price both within and between each of the four countries. Price dispersion is found to be higher between SADC countries than within the individual countries. On average, absolute price deviations between country pairs are smaller for countries adjacent to each other and for countries that share common membership in the Southern African Customs Union. Simple econometric estimates show that absolute price deviations between district pairs in the region increase the further apart the districts are from each other and are higher in the case of districts separated by a national border. Overall, we find no clear evidence that product markets in the SADC region have become more integrated between 2006 and 2009 (although product prices between the Common Market for Eastern and Southern Africa countries did become more integrated over this period), despite the liberalisation of tariffs under the SADC Protocol on Trade. Trade liberalisation alone appears not to be sufficient in generating greater product market integration within the region.