Tax and International Trade in the SADC Region:A Panel Gravity Model Approach
Purpose: The study intends to investigate the effect of taxation on bilateral trade in the Southern African Development Community region. It is motivated by the on-going reviews of tax rates in the frame of the SADC regional integration. Design/Approach/ Methodology: This paper further employs the Poisson pseudo maximum likelihood with high dimensional fixed effects (PPMLHDFE) to ascertain the objective, which caters for multilateral resistance and ensures the accuracy and validity of the results for a time spanning from 2012 to 2018. Findings: The results show that during the period of the analysis, import tax for exporting countries significantly increases bilateral trade, while export tax for exporting countries increases bilateral trade, and significantly reduces bilateral trade for importing countries in the region. International trade tax for exporting countries significantly reduces bilateral trade. Practical Implications: Authorities should formulate a more effective and rational approach to taxation, such as increasing their tax net and downward revision tax rates for struggling companies, so that taxes do not become a hindrance, but rather, a pivotal determinant of trade, growth, and development in the region. Originality/Value: This paper is unique because it is the first to examine and understand the impact of taxation (import tax, export tax and international trade tax) on bilateral trade in the SADC region, employing the standard Poisson Pseudo Maximum Likelihood gravity model approach, which accommodates heteroskedasticity and zero trade flows.