Measuring the dynamics of COMESA output connectedness with the global economy

The Common Market for Eastern and Southern Africa (COMESA) is one of the largest economic and trading regional communities in Africa. The recent global headwinds experience by the region in 2016 has been attributed to both idiosyncratic and external conditions. In addition, the region’s dependence on trade, especially imports, makes growth vulnerable to external shocks, thereby necessitating this study, which examines the dynamics of its output connectedness with the global economy from 1970Q1 to 2016Q4 using the Diebold and Yilmaz (2009) network approach. A major innovation in the paper is the construction of region-specific generalized connectedness measures for the COMESA region. The results indicate that COMESA’s output connectedness with the rest of the world is quite sizeable, with a total connectedness index of 73%. The results also show that the USA, EU, Japan, China, Canada, Indonesia and UK exert the most dominant output influence on COMESA region and therefore have the potential to spread output shocks to it. The results further indicate that the roles of non-COMESA African economies in COMESA’s real activities are minimal relative to idiosyncratic conditions and contributions from the rest of the global economy. Overall, we find that COMESA economies are considerably open, deeply interconnected and sensitive to international output shocks such that policymakers in COMESA must be constantly conscious of output headwinds originating from the aforementioned dominant sources.