Openness and ECOWAS Regional Trade : A Panel Cointegration Analysis Using a Gravity Model

This paper investigates the general effect of ECOWAS regional integration agreements on trade among its members, as well as the level of openness across ECOWAS. The panel dataset consists of bilateral flows of export from 15 ECOWAS countries for the period of 1983–2013, the cointegration method was used for estimation under the gravity model. Comparing the results, a negative and significant coefficient was discovered for the ECOWAS dummy variable, trade openness and financial openness, under pool ordinary least squares (POLS) estimators. Under dynamic ordinary least squares methods the coefficient of the ECOWAS dummy variable remained positive, but not significant. Trade openness was negative and significant under DOLS, while the variable remained positive and not significant under DLSDV. The financial openness variable was both negatively and positively insignificant under both. The empirical evidence indicates that there is a long term relationship inside ECOWAS, and thus, the level of openness among members impedes the level of trade flows on integration. However, the results reveal the fundamental significance of appropriate accounting for endogeneity when assessing trade policies