Trade openness and structural change dynamics in West African countries

Abstract

In this study, we investigate the contribution of trade openness to the structural change process in ECOWAS countries. Our findings suggest that the production structural change process is significantly and positively affected by the extent of trade openness. Higher openness levels are associated with more production reshuffling between sectors. However, this impact is found to be nonlinear. After a threshold of 147.64% of trade openness, the effect reverses. Considering the labor structural change, results suggest that more openness tends to trigger the reshuffle of labor toward less productive sectors. This effect reverses after the openness reached a level of 152.42%. Moreover, exports contract, whereas imports trigger the reshuffling of domestic production factors. So, focusing on industrial-friendly import policies should be a priority for ECOWAS Countries. For labor, exports as well as imports trigger the reshuffling of labor towards less productive sectors. These findings emphasize the importance of external effects in the structural change process in ECOWAS countries. Our analysis suggests that given the basic structure of export products, as long as their increases would fail to develop manufacturing sectors, their ability to shift labor towards more productive sectors would be limited. Also, as imports promote the retail sector, which is less productive, this limits their effect to trigger a desirable labor structural change.