Trade liberalization and manufacturing sector performance: Evidence from the Economic Community of West African States

Abstract

The relationship between trade liberalization and industrial sector performance is ambiguous from both the theoretical and empirical points of view. More so, studies have linked trade liberalization with economic growth and sectoral performance; yet, efforts to situate findings on industrial activity within trade blocs especially in Africa are scarce in the literature. This is particularly important, as the African Union has taken a major step to boost regional trade and economic integration by establishing the African Continental Free Trade Area (AfCFTA). In this paper, the effect of trade liberalization on manufacturing value added for countries in the ECOWAS using data from the World Development Indicators (2019) and the CEPII data base was examined. Findings are shown for the period of the ECOWAS treaty, 1975 to 2019 and the non ECOWAS and ECOWAS period 1960 to 2019. Estimates were provided using the fixed (controlling for country and time effects) and random effects models. Findings showed that trade liberalization measured by openness and export taxes led to improvement in manufacturing value added. Interestingly, increase in import tariff rate as a measure of trade liberalization had unexpected positive effect on manufacturing value added. Additional findings noted were associated improvements in manufacturing sector performance with population increase and fall in the real exchange rate. No significant differences were found in the result for both periods considered in the study. Empirical findings of the study support theoretical propositions that trade liberalization can lead to improved industrial sector performance with specific reference to the African region. The evidence lends support to the potential of AfCFTA in promoting industrial sector performance and sustainable development in Africa.