COMMODITY TRADE AND TRADE POTENTIALS IN ECOWAS

COMMODITY TRADE AND TRADE POTENTIALS IN ECOWAS ( Economics Project Topics)

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.

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)

COMMODITY TRADE AND TRADE POTENTIALS IN ECOWAS ( Economics Project Topics)