Does Free Trade and Institutional Quality Affect the Economic Community of the West African Trading Bloc?

Abstract

AbstractRegional integration is a very significant concern for the Economic Community of West African States (ECOWAS). Even though a lot of empirical work has been done on regional trade including its determinants, very little work has been done to examine the effects of institutional quality and free trade predominantly concentrating on ECOWAS, which is one of the most corrupt, politically unstable, and less governed regions in the world. This research empirically examines the effects of institutional quality and free trade on ECOWAS during 1996–2017 using the gravity model. It also uses the Poisson Pseudo-Maximum Likelihood (PPML) method to establish the relationship between the effects of institutional quality and free trade on ECOWAS. As suggested by Baldwin and Taglioni (2006) and Baier and Bergstrand (2007) it incorporates a multilateral resistance trade term in the model The results confirm that ECOWAS is a regional force where feeble governance and high political instability have hindered trade performance over the years. Historical/colonial ties spurred ECOWAS trade flows and our results show the fundamental significance of no-log (zero trade) for export trade flows and the need to properly account for heterogeneity and endogeneity bias when the trade policy effect is empirically examined. The study recommends that ECOWAS should address the poor institutional quality within the region and proceed to the next stage of integration to enhance economic growth and development.KeywordsECOWASFree tradeGravity modelMultilateralismInstitutionJEL CodesF150F1F120F130F5