THE INCIDENCE AND DYNAMICS OF INTRA-INDUSTRY TRADE BETWEEN GHANA AND ECOWAS
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Date
2012-06-06
Authors
OFFEI, EMMANUEL LARBI
Journal Title
Journal ISSN
Volume Title
Publisher
University of Ghana , Legon
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.