THE INCIDENCE AND DYNAMICS OF INTRA-INDUSTRY TRADE BETWEEN GHANA AND ECOWAS

Abstract

Since intra-industry trade (IIT) was first noticed in the 1960s, theoretical and empirical studies on this type of trade have being growing rapidly. Very few studies however, have investigated IIT in the Economic Community of West African States (ECOWAS) region. This current study attempts to bridge the literature gap by examining the incidence and determinants of IIT between Ghana and its ECOWAS trading partners using empirical trade data from 2004 to 2010. The results show evidence of IIT between Ghana and ECOWAS although it is low as compared to other regions. Sectors found to exhibit high incidence of IIT are transportation, animal products and chemicals industries. At the country level, Cote d’Ivoire has the highest IIT incidence with Cape Verde and Guinea Bissau having no IIT with Ghana. The determinants of IIT are estimated using the gravity model and the results indicate that per capita income, dissimilarity in per capita income, foreign direct investment, and common language affect IIT positively while gross domestic product and geographic distance influence IIT negatively. The main hypothesis guiding this study is that similarity in per capita income between Ghana and the ECOWAS trading partners stimulates IIT. This hypothesis is however rejected because the study finds a positive correlation between dissimilarity in per capita income and intraindustry trade instead of the a priori expectation of negative sign. The study recommends that policies should be introduced to encourage the expansion of the manufacturing sector in member countries. Exchange rate variability and bottlenecks in the level of traffic flow along interstate corridors must be removed to enhance intra-industry trade within the subregion.