Investigating the Impacts of Intraregional Trade and Aid on Per Capita Income in Africa: Case Study of the ECOWAS

Assandé Désiré Adom

doi:10.1155/2012/297658

Abstract

In the past 50 years, a striking stylized fact has been the downward—or flat—trend of intra-African trade as a share of Africa’s total trade, while official development assistance (ODA) has experienced a noticeable expansion. During the same period, economic growth performances have not been consistent and robust enough to put a dent in the poverty level across the African continent in general and the Economic Community of West African States (ECOWAS) in particular. Using a two-stage least square (TSLS) estimation technique, this paper finds out that intra-ECOWAS trade stimulates per capita income growth substantially more than foreign aid, which rather constitutes an impediment to that growth in most specifications. Additionally, comparable results are obtained when the scope of the study is expanded to include trade of ECOWAS members with the rest of the world. As a result, it becomes appropriate to suggest policy recommendations encouraging increased cooperation among member states in an attempt to (i) expand and build new cross-states infrastructures, aimed at boosting communications and telecommunications networks, (ii) accelerate the trade facilitation process by addressing administrative red tapes that balloon both transaction costs and delays in the flows of goods across borders, seaports, and airports, and (iii) develop and diversify the industrial base in member states.

Highlights

“Can foreign aid buy growth?” This was the insightful interrogation addressed by Easterly [1] in a study relating to the effectiveness of aid in developing countries
According to figures published by the United Nations Conference on Trade and Development (UNCTAD), global trade has experienced a 7-fold increase since 1980
For decades following their independence, the growing inflow of foreign aid has nurtured a culture of financial dependency and mal governance that have not proved helpful in promoting economic growth in a long list of African countries

Summary

Introduction

“Can foreign aid buy growth?” This was the insightful interrogation addressed by Easterly [1] in a study relating to the effectiveness of aid in developing countries. Many observers and scholars have opined on whether or not aid has in effect helped developing countries achieve economic growth, which is a necessary—but not a sufficient—condition to successfully alleviate the scourges of poverty. The volume of aid in that region was as high as $35 per person in the 1990s [3, page 11] These countries have not developed and implemented effective trade policies to generate revenue on their own as a consequence of their heavy reliance on foreign aid. It is noteworthy that foreign aid remittances remain a chief factor that perpetuates the deeply entrenched patronage system in many African countries [5, page 32] It is a stylized fact across the globe that countries that have experienced sustained economic growth and prosperity have done so through a continued expansion and embrace of trade with other countries

Methods

Results

Conclusion