Regionalism and ECOWAS Trade Performance: A Gravity Model Approach

Abstract

This paper investigates bilateral trade flows and the level of openness across ECOW-AS-15 nations for the period of 1981-2013 using Poisson pseudo maximum likelihood (PPML), fully modified ordinary least squares (FMOLS) and canonical cointegrating regression (CCR). Comparing the results, the ECOWAS dummy variable was negative and significant in all of the estimation techniques. Financial openness under FMOLS and CCR was negatively significant. Trade openness was found to be negatively significant only under PPML. The empirical results indicate that a common border and distance have had a strong effect on ECOWAS trade; also there is a negative effect of trade flow among ECOWAS members. Moreover, the level of financial and trade openness among members impedes the level of trade flows on integration. The estimated results highlight the underlying significance of accurately accounting for endogeneity when estimating trade policy impacts.

Does intermediate tariff bode well for trade integration in ECOWAS?

“…When the similarity in factor endowments or intensities increases by 100 percent, the flows of intermediate exports decline by about 9.5 percent. This finding is in contrast to that of Afolabi et al (2015) who used the difference in per capita income as a proxy for difference in relative factor endowments and obtained a positive and significant coefficient while assessing regionalism and ECOWAS trade performance using a gravity approach. However, it is similar to that of Wang, Wei and Liu (2010) who investigated the determinants of trade flows in OECD countries using gravity panel data models and obtained a negative but significant estimate for the relative factor endowment.…”

The Impact of Regional Integration on Africa’s Manufacturing Exports

“…However, the study did not correct for the endogeneity of the RTAs. Likewise, Luqman et al (2015) investigated the effect of ECOWAS on bilateral trade flows from 1981 to 2013. They used a PPML estimator and found that the ECOWAS dummy variable was negative.…”