Trade Integration and Economic Growth in ECOWAS: Evidence from Disaggregated Trade and Dynamic Causality Analysis
DOI:
https://doi.org/10.64137/31080030/IJFEMS-V2I1P105Keywords:
Economic Growth, Trade Integration, ECOWAS, Intra-Regional Trade, CausalityAbstract
The relationship between trade integration and economic growth has been a central yet unresolved issue in development economics, especially in regional blocks in sub-Saharan Africa. Despite the growth of regional trade agreements on the continent, there is little research on causal relationships between trade integration and growth in the Economic Community of West African States (ECOWAS). This study fills this gap by investigating the causal-effect relationship between trade integration and economic growth in ECOWAS between 1995 and 2022. In particular, the paper identifies the difference between intra-regional and extra-regional trade in order to give a detailed perspective of the integration impacts. The paper uses time series and panel econometric analysis, such as the Autoregressive Distributed Lag (ARDL) method, Vector Error Correction Model (VECM) and Wald coefficient test, to measure both short-term and long-term causal relationships. Empirical findings show that there is short-run causality that is one-directional (trade integration to economic growth), but no bidirectional causality in the long run between the aggregate variables. Nevertheless, in disaggregated form, both intra- and extra-regional trade have a strong long-run effect on economic growth, and there is no reverse causation. The results indicate that the growth-increasing impacts of trade integration in ECOWAS are mostly short-term motivated and conditional on the joint form of the trade flows. The paper concludes that regional integration in itself will not be able to support any substantial growth in the long-term unless accompanied by structural and institutional reforms. It therefore proposes policies that would enhance intra-regional trade, cut non-tariff barriers and enhance the quality of institutions. This paper contributes to the literature as it provides a detailed picture of the trade-growth nexus in ECOWAS by combining disaggregated trade measures with dynamic causal analysis.
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