The Determinants of Trade and Trade Direction of Arab Maghreb Union

The Arab Maghreb Union (AMU) comprising Algeria, Libya, Mauritania, Morocco, and Tunisia have established a framework to enhance regional cooperation on trade facilitation. Today, the AMU countries have increased their trade integration into the world economy. Despite the effort of trade openness in the AMU, the economic growth, intra-trade and inter-trade are still lagging behind other developing countries in the Middle East, Asia, and Latin America. The paper examines the determinants of intra-regional trade in the AMU countries. Using a data set of 1989-2009; the standard gravity model is used to measure the pattern and trend of bilateral trade. The results from gravity model indicate that there are strong positive and negative relationship between trade and GDP, population, distance, foreign currency reserves (FOC) and real exchange rate (RER) among AMU countries. AMU has helped to improve trade flows in its member trading. Evidently this study shows that the gravity model is still a useful instrument in analyzing the implications of international economic integration. In a way, this study established that regional economic integration is plausible and beneficial.