ABSTRACT
In spite of the vast deposit of resources and human endowments in ECOWAS region, gains from trade have really been marginal in the region. ECOWAS members have poor performance in export of dynamic products; they remained commodity dependent in its exports, leading to transfer of economic gains across border. Over 90% of the region’s export is primary products with very little value-added which accentuated from commodity price and demand inelasticity resulting in terms of trade losses and volatile foreign earnings. Based on these facts, the study tries to investigate the impact of export diversification and composition on GDP growth and GDP per capita respectively. This was achieved using econometric analyses involving co-integration technique and an analytical least square technique for the period of 1975-2009 and 1990-2007 respectively in 15 ECOWAS states. The study was deemed significant, as export diversification index induced a significant but inverse impact on GDP growth while manufacturing value-added exerts though weak but a positive effect on GDP per capita growth. The study found that the high skewness of ECOWAS to commodity export in the period observed would have been responsible to the result obtained, therefore, finding concluded that it is not how much that is exported that matters but very important is what is exported as regions with less specialization and more diversified exports generally experienced higher economic growth rates and contributed much more to overall exports. Several recommendations for policy and further studies were made in the study; notable among them is the need for ECOWAS countries to develop domestic processing capability and see export as originating from domestic sufficiency.
TABLE OF CONTENT
Title page
Table of contents
List of tables
List of figures
Abstract
CHAPTER ONE: INTRODUCTION
1.1 Background of the Study
1.2 Statement of Research Problem
1.3 Significance of Study
1.4 Research Objectives
1.5 Research Hypothesis
1.6 Research Methodology
1.7 Research Scope
1.8 Sources of Data
1.9 Research Outline
CHAPTER TWO: BACKGROUND TO THE STUDY
2.1 Introduction
2.2 Formation of ECOWAS
2.3 Rationale for ECOWAS Formation
2.4 Trade Potentials in ECOWAS
2.5 Economic Description of ECOWAS Countries
2.6 Commodity trade in Africa
2.7 Commodity trade: The ECOWAS Experience
CHAPTER THREE: LITERATURE REVIEW
3.1 Review of Definitional Issues
3.1.1 Introduction
3.1.2 Africa’s trade structure and performance
3.1.3 Price Volatility and term of trade losses
3.1.4 Diversification and Productivity
3.1.5 Commodity resource curse
3.1.6 Export Diversification and Growth
3.2 Review of theoretical Issues
3.2.1 Diversification Approaches
3.2.2 Horizontal and Vertical Diversification
3.3 Review of Empirical Issues
3.3.1 ECOWAS Commodity export and commodity prices
3.3.2 Why commodity prices behave the way they do?
CHAPTER FOUR: ANALYTICAL FRAMEWORK AND RESEARCH METHODOLOGY
4.1 Introduction
4.2 theoretical Framework
4.3 Model specification
4.3.1 ECOWAS Growth-Diversification Model
4.3.2 Panel Per capita trade growth model
4.4 Research Design
4.5 Econometric Methodology
4.5.1 Testing for the order of integration of series
4.5.2 Co-integration Representation
4.5.3 Error Correction Modelling representation
4.5 Data source and description
CHAPTER FIVE: EMPIRICAL RESULTS AND ANALYSES
5.1 Introduction
5.2 Descriptive Analysis
5.3 Discussion of econometric results
5.3.1 Summary statistics of major variables
5.3.2 Discussion of estimation results
5.3.3 Testing for co-integration using Johansen Approach
5.3.4 Vector Error Correction Modeling (VECM)
5.3.5 Panel Least Square estimation
CHAPTER SIX: SUMMARY, RECOMMENDATION AND CONCLUSION
6.1 Introduction
6.2 Summary of major findings and implication
6.3 Policy recommendation
6.4 Conclusion
6.5 Limitation of study and agenda for further research
References
Appendix
CHAPTER ONE
INTRODUCTION
1.1 Background to the Study
In the development process of Africa, trade is regarded as very important. This stems from the fact that a favourable term of trade generates foreign exchange needed for economic advancement and ensures optimum level of societal welfare; therefore, trade balance is a major economic goal. Trade as a common practise of exchanging excess produce for scare ones, measured by level of foreign exchange earnings is not equally obtained by every nation. The inter-country struggle to acquire maximum wealth at the detriment of trading partners had made rewards for exchanges unequal depending on the universal general preferences for trading goods. The concern of the economists overtime has been at what level of output exchange, under what exchange policies and what nature of output would such an exchange generate economic growth. Whether nations are trading (exporting) is not an ideal reasoning, but all products are not equally preferred, different products do not carry similar prices and countries restrict the volume of injections by trading partners.
Therefore, the major economic reasoning is to determine what nature of products, trade openness, volume of trade would guarantee economic growth and general societal welfare. If enhancing the volume of export and maintaining a favourable balance of payment is paramount, despite increasing volume of Africa commodity trade; does trade cause growth in Africa?
More than any other developing region, Africa’s heavy dependence on primary commodities as a source of export earnings has meant that the continent remains vulnerable to market vagaries and weather conditions. Price volatility, arising mainly from supply shocks and the secular decline in real commodity prices, and the attendant terms-of-trade losses have enacted heavy costs in terms of incomes, indebtedness, investment, poverty and development. (United Nations Conference on Trade and Development-UNCTAD, 2003)
Africa’s poor performance and declining share of world trade is linked to the structure and composition of Africa’s trade, which rests heavily on commodity dependence and its inability to diversify export base.
The most market dynamic products (ranked by growth in export value during 1980-2000) in the world trade are manufactures; which are high-technology products, some labour-intensive manufactures, notably clothing have seen rapid growth in world trade as a result of the spread of international production networks and subcontracting. (UNCTAD, 2002)
Africa, undergarments (Standard International Trade Classification-SITC 846) are the only important export item among the most dynamic product in world trade. However, their share in total Africa exports is only 1.7 per cent. Moreover, two countries (Mauritius and Swaziland) account for just over 85 per cent of total exports of this product. Seventeen of the 20 most important export items of Africa are primary commodities and resource-based semi-manufactures. On average, world trade in these products has been growing much less rapidly than manufactures. However, trade in some non-traditional commodities has seen considerable expansion over the past two decades. Of such commodities, there are among the 20 most important export items of SSA (namely fish and crustaceans, SITC 0.34, 0.36 and 0.37), accounting for 8.5 per cent of total African export earnings in 2000. World trade in other Primary commodities that account for an important proportion of total exports of Africa, particularly agriculture products such as Coffee, Cocoa, Cotton and Sugar, has been sluggish, with the average growth of trade in such products in the past two decades barely reaching one-third of the annual growth rate of world trade in all products, i.e. 8.4 per cent over 1980-2000.
This analysis reveals that SSA barely participate in trade in market-dynamic products, which suggests that global demand for most of its main non-fuel commodity export is sluggish, a situation aggravated by high price volatility and declining real prices. Unfortunately, the continent’s dependence on these commodities is unlikely to decrease significantly in the short and possibly medium run. This underscores the need for more concerted and innovative measures to reduce the problems associated with such dependence, in particular within the context of the new multilateral trading system (UNCTAD, 2003).
Comparative advantage is not a static phenomenon, it could be developed by countries, the increasing complex nature of international trade and large variation in product prices and earning instability now suggests that product of one country is no more depending on factor endowment and perfect competition, countries that wish to gain immensely must enhance export base diversification.
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