Abstract
In this paper, we measure trade costs for ECOWAS countries and infer their impact on trade flows. The paper applies an unconditional general equilibrium trade model consistent with the Ricardian and heterogeneous firms’ models of trade to estimate a trade cost equation to obtain the tariff equivalent trade cost measure for ECOWAS countries. The method expresses the trade cost parameters as a function of observable trade data. We find that over the period 1980-2003, the cost of trading within SSA was the highest, compared to other regional groups, at an average tariff equivalent of 271.5 percent. On average ECOWAS countries traded with their trading partners at a tariff equivalent trade cost of 268.2 percent, higher than countries from other regional blocs within and out of SSA. With regards to trade flow involving ECOWAS countries, estimates of tariff equivalent trade costs indicates that on average ECOWAS countries traded among each other at a lower cost than with other trading partners from economic blocs out of ECOWAS. This could be attributed to the positive impact of regional trade integration efforts. Over the years especially since 2000, ECOWAS seemed to have promoted intra-ECOWAS trade especially with regards to export of manufactures. With regards to countries within ECOWAS, intra-ECOWAS trade costs with Cote d’Ivoirewere the lowest at an average tariff equivalent trade cost of 138.5 percent and this was significantly lower thanGhana,NigeriaandBenin.
Highlights
The high and rising level of trade costs has generated intense academic and policy interest on the level and its impact on trade flows and economic integration
On average ECOWAS countries traded with their trading partners at a tariff equivalent trade cost of 268.2 percent, higher than countries from other regional blocs within and out of SSA
The empirical approach adopted in this study is to estimate a trade cost equation to obtain the tariff equivalent trade cost measure for ECOWAS countries that expresses the trade cost parameters as a function of observable trade data, derived in (6) as where τij is the tariff equivalent trade cost, Xii and Xjj is the domestic trade of countries i and j respectively, Xij and Xji is the bilateral trade of countries i and j respectively, and σ is the elasticity of substitution
Summary
The high and rising level of trade costs has generated intense academic and policy interest on the level and its impact on trade flows and economic integration. Regional integration is seen as the resultant of reduced costs of transportation in particular and other infrastructure services in general (Khan and Weiss [3]). Reducing international trade costs and improving trade competitiveness would have a very significant impact on intra-regional trade. It is unsurprising that trade facilitation and trade cost reduction programs or targets form important component of bilateral or regional trade and economic integration initiatives. This paper seeks to address this knowledge gap by estimating and analyzing intra and extra-regional trade costs of ECOWAS. We offer estimation and analysis of results on section five with conclusions on the last section of the paper
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