Trade openness and economic growth in the ECOWAS region

This paper examines the relationship between trade openness and economic growth in the ECOWAS member states. Panel data obtained from the World Bank database was used to estimate the relationship between trade openness and growth. The study covered 31 year (1985-2015) sampling 10 major traders in ECOWAS. The trade volume of Nigeria, Ghana, Cote D'Ivore, Senegal, Mali, Burkina Faso, Benin, The Gambia, Niger and Togo represent approximately 98.5 percent of the total trade in ECOWAS. The F statistic favored pooled OLS and regression results obtained from the data shows that trade openness (proxy by total trade as a percentage of the GDP) has a negative impact on growth and statistically insignificant. A percentage increase in trade share as a percentage of GDP will lead to a percentage decrease in GDP per capita ceteris paribus. In order to check the robustness of the relationship between openness and growth, import as a percentage of GDP was introduced as a proxy to measure openness. Here the Hausman test favored REM and results indicate that, a percentage increase in import as a percentage of GDP will lead to a 2 percent fall in GDP per capita growth ceteris paribus. The negative effect of import can be attributed to the importation of consumer goods which do not generate revenue for an economy or facilitate reinvestment. Furthermore, a set of four countries were chosen from the sampled 10 countries to check the individual effect of openness on their economy. The results shows that the larger the economy the higher the real GDP growth rate. This paper therefore defends the proposition that trade openness has negatively contributed to economic growth in ECOWAS during the last three decades, and these countries were motivated to open up their borders for trade in order to obtain loans and aids from international organizations.