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

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.