Role of governance in open trade policies–growth nexus in ECOWAS countries: The use of extended IV approach in panel data

Essotanam Mamba

The Journal of International Trade & Economic Development, 2021, vol. 30, issue 5, 661-684

Abstract: The work assesses whether the effect of open trade policies-OTP on growth is dependent on the level of governance quality in the Economic Community of West African States (ECOWAS) countries. We estimate a non-linear growth equation that interacts OTP with governance. Based on the cross-sectional dependence test, we use the Driscoll–Kraay approach and mainly an extended instrumental variables-IV approach (fixed effect + IV approach also controls the endogeneity issue) to control the correlation between units. The basic regressions without interaction terms indicate that good governance itself is essential for growth while economic growth decreases with the level of OTP. The findings from the non-linear growth equation indicate that while the effect of OTP on growth increases as the institutional quality improves, it changes from statistically significant in the negative direction for bad institutional quality to statistically significant in the positive direction for better institutional quality. These findings suggest that ECOWAS countries must improve their institutional quality to increase the positive effect of OTP on growth.

Date: 2021
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Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:taf:jitecd:v:30:y:2021:i:5:p:661-684

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DOI: 10.1080/09638199.2021.1889643

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