ECONOMIC POLICY IMPACT ON TRADE: AN ANALYSIS OF THE ECONOMIC COMMUNITY OF WEST AFRICAN STATES (ECOWAS)

Abstract

ABSTRACT In this age of globalization and multilateralism, countries are increasingly designing strategies to strengthen their negotiation power. Recently, African countries have taken steps to close their economic gaps and become more competitive worldwide through regional grouping such as The Economic Community of West African States (ECOWAS). However, the intergovernmental approach of the Community's current institutions hinders its regional integration process. Therefore, it is of utmost importance that we consider improving the framework to achieve regional integration objectives. This study provides a critical analysis and examines whether regional integration is the best strategy to achieve objectives of the ECOWAS. It also investigates whether the introduction of a common external tariff changes intra-ECOWAS trade flows. Furthermore, this study examines whether institutions are bearing on the outcome of the regional integration process, especially in respect of their impact on trade flows. The matrix trade flows technique assesses the trade direction among ECOWAS countries. The commodity composition analysis shows the commodities traded regionally and allows an assessment of the production structure of ECOWAS. The Feasible Generalized Least Squares (FGLS) method is used to analyze the effects of regional integration and institutions on trade flows. This study finds that trade openness within the region increases the Community trade relations. However, the implementation of the CET reduces intra-regional trade flows. The results reveal that regional integration is a significant factor in strengthening negotiating power. The study also reveals that institutions significantly contribute to the achievement of regional integration objectives as well as to improving trade flows. Keywords Economic policy, impact, ECOWAS