CHINA-AFRICA TRADE RELATIONS: GROWTH IMPLICATION FOR ECOWAS COUNTRIES.

Abstract

The Economic Community of West African States(ECOWAS) comprises of fifteen West Africa countries and covers a total land mass of 5,112,908 square miles. The countries although blessed with abundant resources have long been plagued with problems of poverty, high unemployment rate and wide income inequality. However, current statistics shows that ECOWAS countries recently witnessed an impressive performance in terms of economic growth. This period of high growth also coincided with the period of high trade relations between ECOWAS countries and China. This has raised an unanswered question as to whether or not the period of high growth performance in ECOWAS states and period of high trade relationship with China occurring at the same time is a mere coincidence. The study explores empirical data from the fifteen ECOWAS countries for the period 1992 – 2013 making a balance panel of 330 observations to generate empirical results to answer this question. Theoretically, trade is identified as a source of economic growth. Empirically, however, there were divergences of opinions. Zeroing on the impact of China – Africa trade relations on economic growth of ECOWAS countries, this study adopts the Generalised Method of Moment (GMM) estimator using internal instruments in order to take care of the potential endogeneity of trade and other variables, especially reverse causation of growth and trade. The empirical results from this study reveal that ECOWAS trade with China has a positive and significant impact on economic growth in ECOWAS countries. This means that the recent economic growth performance of ECOWAS States occurring simultaneously with upswing in trade relations with China is not a mere coincidence. However, the results show that it is the imports from China that actually drives the growth in ECOWAS states. Exports from ECOWAS countries to China were found not to be a robust determinant of economic growth in ECOWAS states. Also, the oil producing countries in ECOWAS benefits more from the trade relationship with China compared to non oil producing countries. The study also empirically shows the channels through which ECOWAS trade with China affects growth in ECOWAS states. These channels include quality of institutions, levels of financial development, level of human capital development and level of infrastructural development. On the basis of the empirical findings, the study concludes that imports from China are crucial for growth in ECOWAS countries at their current level of development as it enable them to benefit from the technological transfer associated with such relationship. However, the sustainability of such growth in the long run depends on the ability of ECOWAS countries to utilize this technological knowledge received to develop their own productive base and diversify their export commodities through value added processing of raw materials and light manufacturing.