Abstract
This study estimates the general equilibrium effects of the Economic Community of West African States (ECOWAS) free trade agreement, established in 1990, using the structural gravity model. Following the Anderson et al. (2015) methodology, we used country fixed effects as a proxy for multilateral resistance terms, which are considered as general equilibrium trade costs, to estimate the effects of regional trade liberalization on the ECOWAS member countries welfare. This study used data on 45 partners’ industrial trade flows from 1980 to 2006. The results indicate that trade liberalization has had positive effects on ECOWAS members welfare, via consumer or producer welfare channels. The latter channel induces an important change in real GDP relative to the former channel-countries with higher levels of producer welfare than consumer welfare experience greater changes in real GDP.
Highlights
The globalization process that began in the 1990s has increased the marginalization risk of the African continent
Following the methodology developed by Anderson et al (2015), Larch & Yotov (2016) and Yotov et al (2016), this study aims to estimate the general equilibrium effect of regional trade liberalization on Economic Community of West African States (ECOWAS) members’ welfare using a structural gravity model
The free trade agreement contributes to increased ECOWAS intra-trade by 80.22% ((exp(0.589) − 1) × 100)
Summary
The globalization process that began in the 1990s has increased the marginalization risk of the African continent. Compared with other parts of the world, African countries do not trade much with each other. In 2017, the intra-African trade represented only 17% of African merchandise exports, against 64% for the Euro Union, 50% for North America, 48.63% for Asia, and 20.5% for South and Central America and the Caribbean. The narrowness of African markets, accompanied by significant trade barriers, tends to make intra-African trade more expensive than Africa’s trade with the rest of the world. The low level of trade is attributable to the non-exploitation of commercial potential. In this context, economic and regional integration through an expansion of the market’s size can allow African countries to exploit economies of scale, benefit from technological externalities, and attract a direct foreign investment surplus
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