Estimating the Trade Effects of the Ecowas Free Trade Area (FTA) on Bilateral Trade Flows – A Panel Data Analysis

Abstract

The Economic Community of West African States (ECOWAS) after its establishment in 1975, was tasked with a major responsibility of enhancing intra-ECOWAS trade. This led to the establishment of the ECOWAS Trade Liberalization Scheme (ETLS) in 1990 – a mechanism designed to ensure that trade is fully liberalized in West Africa. Intra-ECOWAS trade according to the International Monetary Fund Direction of Trade Statistics (IMF DOTS) and the United Nations Conference on Trade and Development (UNCTAD) remains less than 15 percent. This has led many researchers to investigate the effects of the ECOWAS Free Trade Area (FTA) on bilateral trade flows among member states. Using a panel data from 1995 to 2015, this thesis employs test statistics and regression analysis to measure the variables which enhances bilateral trade in ECOWAS. Results from the estimations suggests that larger GDPs, huge population sizes, sharing a common currency and language all exerts a positive impact on bilateral trade flows. On the contrary, we found that sharing colonial links does not necessarily increase trade among countries. It actually opposes bilateral trade significantly. Based on the results, this study recommends that governments should provide massive infrastructure development to facilitate trade among member countries of the FTA. Domestic industries as well must be given essential support to enhance their production capacities to make value addition to extractive goods feasible. Also, there is a pressing need to facilitate the quick establishment of a common currency for ECOWAS. In addition, processes at the borders of member countries must be harmonized and made easy to facilitate the movement of goods across borders.