CHAPTER ONE

1.1Background to the Study

Trade relations among nations of the world have become a normal economic practice over

time. The foregoing has presented trade as a basic necessity for economies to make reasonable

progress in their long walk to a self-sustaining economic development. However the nature and

direction of relationship as well as the economic status of participating countries is of utmost

importance. Following the traditional trade theories as put forward by Adam Smith and David

Ricardo and their extended form in the Hecksher-Ohlin-Samuelson’s factor endowment theory

favorable conditions for a mutually beneficial trade between two or more countries exist only on

the basis of different factor endowments which forms the basis for an absolute or comparative

advantage in trading. This assertion however could be said to apply favourably when dealing with

inter-industry trade. With insights from Therien (1999) this form of trade usually occurs between

the developed countries (North) and the developing countries (South). Howbeit as often reported

the benefits obtainable from inter-industry trade is usually very minimal for developing countries

given their exports composition of primary products which are mostly underprized in the global

market and their economic smallness and fragmented existence which robs them of the capacity to

negotiate better prices for their primary products (Salvatore 2006). The consequence has been the

continuous state of underdevelopment and economic dependence of the developing countries on

the developed countries. Nevertheless Linder (1961) brought forward a possible remedy from this

state of economic frustration he made suggestions on the possibility of trade occurring between

countries with similar factor endowments and stressed the need for developing countries to utilize

intra-industry trade on similar but differentiated products in a regionally integrated market as a

step towards integration into the global market. The concept of economic integration comes to the

fore here.

Economic integration has been seen to portray some positive elements that can be

fundamental to the development of the third-world economies. Its various channels of operation

are considered possible doorways through which developing countries can negotiate cooperatively

to chat new courses for their development struggle. Empirical wisdom proves it and economic

theories of trade and growth show it that integration processes are likely to have a tremendous

impact on the intensity of trade and the division of labour between the countries involved as well

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as on wages and incomes within them (Ombeni 2008). Many economic blocs exist with their

peculiarities some notable examples include the North American Free Trade Area (NAFTA) and

the European Union (EU). These two appear to be the foremost economic blocs which serve as

models for others to be tailored after. The African Development Bank Report (2016) records that

there exist about eight of such unions in Africa with the Economic Community of West African

States (ECOWAS) being Nigeria’s most active economic community. Ombeni (2008) states that

these sort of arrangements by default have positive accruals which are expected to be more at

higher levels of integration. Popovich (2010) further explains that each integration brings changes

to the consumers and manufacturers of a country that embraces it while other changes take place

as well. With respect to Ombeni (2008) these changes include: increased trade expanded markets

attraction of Foreign Direct Investment (FDI) increased bargaining power strengthened security

and conflict resolution in the region and the free movement of people across the region. Member

Countries could as well undertake several projects together including transport and communication

projects collective employment and poverty reduction joint environmental conservation as

evident in the East African Community (EAC) in the conservation of Lake Victoria (commonly

owned by Tanzania Kenya and Uganda) and a joint tourism promotion.

According to the Treaty of Lagos a major reason for forming the Community (ECOWAS)

was "the overriding need to accelerate foster and encourage the economic and social development

of their states in order to improve the living standards of their peoples" (Diejomaoh and Iyoha

1980). The primary instrumentality for achieving this desirable objective of rapid economic

development was the establishment of a customs union entailing: internal free trade among

members a common external tariff free labour mobility free movement of services and capital

between member states (Diejomaoh and Iyoha 1980). From here it can be seen that the most

attractive factor of integration is hinged on the general principle of the creation of a common

market where goods services and capital are guaranteed freedom of movement within the

integrated area. This guarantee includes the right of residence and establishment and all activities

have a bearing on national output which inspires economic growth.

The African Union Report (2015) makes a claim that Nigeria is the top-most

performer in two key dimensions (free movement of persons and trade integration) of integration

within the ECOWAS regional bloc. While these statistics are grossly aggregated on a cross-

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country panel data basis it is pertinent for a closer investigation to be done with key consideration

on specific effects of economic integration on the participating countries. This paper shall seek to

evaluate and elicit the potential gains of moving on with the strategy of integration as a remedy to

the current unacceptable and intolerable economic conditions in the ECOWAS region. The paper

shall further perform an isolated evaluation to ascertain how economic integration (between

ECOWAS countries) has been effective in promoting trading activities and economic growth in the

region.

1.2STATEMENT OF THE PROBLEM

The prime purpose of regional economic communities is the benefits that participating

countries expect to get from them. As stated in Iyoha (2005) an important feature of the higher

levels of economic integration is free trade among members and this free trade is expected to lead

to a rapid increase in trade which in turn is likely to lead to rapid economic growth. These gains

arise due to the cumulative nature of the dynamic effects of economic integration which leads to

growth. These effects are often described as the long-run effects of economic growth of member

states as a result of increased market size and exploitation of economies of scale increased

competition learning by doing and increased investment (Iyoha 2007). According to Salvatore

(2004) the increased investment is due to the fact that economic integration is likely to encourage

multinational corporations to invest and produce within the integrated economies to avoid trade

restrictions imposed on non-member states. Among these dynamic effects of economic integration

Salvatore (2004) argues that increased competition is the greatest effect of economic integration

as it motivates producers to become more efficient in order to be able to compete with other

producers. Some economic communities and in particular the European Economic Community

(EEC) have shown that the larger the integration the more likely it will lead to growth since

successively higher levels of integration is most likely to create a larger market for products. This

will further strengthen the potential economies of scale which leads to more rapid autonomous

productivity advances which is more likely to bring an integration that will lead to growth.

Several attempts of regional economic integration in Africa have been put into place over time but

according to Yang and Gupta (2005) they have been ineffective in promoting trade and attracting

Foreign Direct Investment (FDI) in the continent. Relatively high external trade barriers and low

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resource complementarity between Partner States limit internal and external regional trade. Small

market size poor transport facilities and high trading costs make it difficult for African countries

to reap the potential benefits of economic integration (Yang and Gupta 2005). As Schiff and

Winters (2002) clearly pointed out the increasing trend towards regionalism has made regional

economic integration a part and parcel of the world economic order. This trend has become a

recognized feature of the international scene and has achieved some level of meaning and

significance. Many factors contribute to this growing trend of regionalism and they include among

others the desire to obtain more secure access to major markets the pressure of globalization the

crave for a better stake in the global economy and governments desire to bind themselves to better

policies including democracy and to signal such bindings to domestic and foreign investors (Schiff

and Winters 2002). Even though the trend of regionalism has been on the increase FONDAD

(1996) explains that economic integration can only have the potential to be growth enhancing if it

improves welfare and promote investment in both physical and human capital. According to

Todaro and Smith (2006) the trade hypothesis of developing countries should go beyond greater

trade with one another and move in the direction of economic integration. “The basic economic

rationale for the gradual integration of the less developed is a long-term dynamic one: Integration

provides the opportunity for industries that have not yet been established as well as for those that

have to take advantage of economies of large-scale production made possible by expanded

markets” (Todaro and Smith 2006). It is through these benefits and particularly the success of

other regional arrangements like the European Union that has caused countries in Africa and other

parts of the world to sweep into regionalism. In Africa however there are several regional

economic communities with a long history of existence but in most cases they are not very

effective and the benefits from them are not exactly spelt out especially the arrangement in the

ECOWAS region. Oshikoya (2010) argues that resources similarities and overlapping

memberships are among the main problems for the limited benefits. Overlapping membership

makes it difficult for the Member States to implement competing strategies of different economic

groupings. Apart from overlapping membership the integration arrangements are not characterized

by strong “supranational” bodies and virtually all integration institutions are intergovernmental.

This is because many developing nations are not willing to relinquish their sovereignty to a

“supranational” community body as is required for successful economic integration (Salvatore

2004). Given the current increasing trend of regionalism and the unrecognized results from

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experience thus far developing countries in Africa need to carefully assess taking experience from

other successful economic communities the extent to which they can benefit from effectively

integrating their economies. It is on this premise that this study aims to re-examine how economic

integration can be advantageous to countries in the ECOWAS regional community. This will be

done by assessing the benefits that Nigeria alongside some selected ECOWAS countries

( Senegal Gambia Guinea Ghana Cote D’Ivoire and Benue) is enjoying as a result of their

membership in the ECOWAS regional bloc.

1.3OBJECTIVE OF THE STUDY

The objective of this paper is to identify the general benefits obtainable from economic

integration schemes by developing countries. This will be done by reviewing and extrapolating

from literatures related to regional economic integration. However the specific objective of this

paper include:

To examine the impact of economic integration in the ECOWAS regional community on

trade between member states.

To examine the impact of economic integration in the ECOWAS regional community on

the economic growth of member states.

To identify the benefits that Nigeria is getting or expecting to get as a result of being a part

of the ECOWAS regional economic community.

In general the a priori expectation will be that higher levels of integration as well as ease of

market access via economic co-operation will yield a higher capacity to enhance trade amongst

members thereby leading to a higher level of economic growth.

1.4RESEARCH HYPOTHESES

The study was built on the following hypotheses:

H0: Economic integration does not have any significant impact on trade flows between ECOWAS

countries.

H0: There is no significant relationship between economic integration and economic growth

(proxied by real GDP) in ECOWAS countries.

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1.5RESEARCH QUESTIONS

The main research question which will guide this study is ‘What are the benefits which

Nigeria is getting or expecting to get as a result of being in the ECOWAS regional economic

community?’ However the following questions will be addressed alongside the main research

question:

Does economic integration work to promote trade flows between ECOWAS countries?

Can integration impact growth in ECOWAS countries?

1.6SCOPE OF THE STUDY

This paper employs a case study approach in finding out how economic integration can

benefit developing countries in Africa. The following selected countries (Nigeria Ghana Gambia

Guinea Benin Senegal and Cote d’Ivoire) in the Economic Community of West African States

(ECOWAS) are the focus of this research. The gathering of the required information for the study

will be sourced mostly from secondary sources largely collected from the ECOWAS reports IMF

World Economic Outlook World Development Indicators and IMF stat database for the period

1990 to 2017. The time was so chosen because the 1990’s witnessed a great boom in integration

activities in Africa. Also the scope was chosen due to the coherence of records of regional

activities from the specified time. In addition this study mostly focused on reanalyzing data

which are already available about the Economic Community of West African States. Although the

ECOWAS currently has fifteen member states (Benin Burkina Faso Cape Verde Côte d'ivoire

The Gambia Ghana Guinea Guinea Bissau Liberia Mali Niger Nigeria Senegal Sierra Leone

and Togo ) the intellectual focus of this study is on seven ECOWAS countries (Nigeria Ghana

Gambia Guinea Benin Senegal and Cote dívoire) and will utilize data spanning a 27-year period

1990-2017. This is also as a result of insufficient data on variables for the year 2018. The selection

of ECOWAS as the region for consideration in this study is particularly important because despite

the numerous studies on the integration-trade-growth nexus for many advanced and developing

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countries there is a significant scarcity of literature focusing on ECOWAS countries. This shortage

presents the opportunity to investigate the impact of economic integration on trade and growth in

the region. However the selection of countries (Nigeria Ghana Gambia Guinea Benin Senegal

and Cote dívoire) is binding on the similarity of per capita income between the countries. This is

primarily to divorce facts from conventions and to investigate ways through which this

arrangement has contributed particularly to the promotion of trade and economic growth in

Nigeria and ECOWAS generally.

1.7Significance of the Study

This project seeks to contribute to the existing knowledge base as well as contribute a

quota to the fore-going argument around economic integration in the African continent. The direct

beneficiaries of the project are policymakers in the regional institutions as well as the policy

makers in the Federal Republic of Nigeria. Knowledge development institutions such as think-

tanks academic and development communities will also benefit from the findings of this study.

The indirect beneficiaries include individuals and private sector actors or businesses that will

eventually be impacted on by the outcomes of the economic integration.

1.8Organization of the Study

The study is organized in a total of five (5) chapters. Chapter one presents the background

to the study the scope research questions as well as the research hypotheses.