Institutional Quality and Intra-Regional Trade Flows: Evidence from ECOWAS

Abstract

Since institutional quality can either create or destroy incentives for individuals to engage in trade, it has become a source of worry to policymakers, as it can limit both intra- and extra-regional trade. Based on this, we empirically analyzed the extent to which national institutional quality affects bilateral trade flows in ECOWAS based on a gravity model for the period from 2000 to 2018. Specifically, the study employs the negative binomial pseudo-maximum likelihood estimator (NBPML). The results reveal that institutional variables with both aggregated and disaggregated measures of the quality of institutions have a significant and positive impact on trade flows in ECOWAS and on its sub-samples, WAEMU and WAMZ. The results further indicate that for both importing and exporting countries, reduced corruption, effective rule of law, and effective government coincide with more trade among member countries. The degree of regional integration is an important determinant of intra-ECOWAS trade, as are GDP, GDP per capita, common language, and landlockedness.