Abstract

Regional economic disparities in developing countries impact growth of regional value chains to compete in the global markets. Regional economic disparities are the difference in economic capabilities between states in a region. The objective of this paper is to explore the impact of regional economic disparities (RED) on growth of food and beverage regional value chains (RVCs) in the East Africa Community (EAC) manufacturing sector. The paper employs the New Economic Geography (NEG) model in investigating the dynamics of promotion of regional value chains in EAC’s manufacturing sector. By making use of secondary data from five member states, the author surveys labour in the manufacturing sector, total income of labourers and executives, taxes, intra-regional and extra-regional trade in foods and beverages, and gross value added as the regional value chain determinant. To answer the research questions, regression analysis was used to shed light on (i) the effect of regional economic disparities on promotion of regional value chains in EAC and (ii) the effect of prices on regional value chains. The findings show disparities having a positive and significant effect on promotion of RVCs; price, intra and extra-regional trade, and executive salaries while labourers’ salaries and taxation have a negative and significant effect on the promotion of RVCs. Whenever EAC states imported from one another, it was noted that the GVA changed positively, similarly when trading with nations outside EAC. When employees in executive positions were well appreciated there was a positive effect on the GVA and a negative effect was observed whenever casual employees were paid more than average in their states as well as when taxes were increased. Future research work may look into Climate Changes, Export Controls and Politics as promoters of regional value chains as well as infrastructure, and technology. The results show need for labourers to acquire more skills necessary to remain relevant in the transforming manufacturing sector. Further, that technology absorption is crucial among producers and regional tax agreements are necessary in industry location decisions. Finally, wages were noted to determine production as the nations paying their workers more seemed to trade regionally more. The author therefore concludes that EAC member states need to increase intra-regional trade, apply some protectionist policies as well encourage increased budgets for education and building of institutions while also attracting foreign direct investments with tax reliefs.