Impact of Regional Road Infrastructure Improvement on Intra-Regional Trade in ECOWAS

1. Impact of Regional Road Infrastructure Improvement on Intra-Regional Trade in ECOWAS By UduakAkpan Infrastructure Consortium for Africa

2. Content

3. Importance of Regional Road Infrastructure • Provides access to key economic inputs e.g. knowledge, resources, and technology • reduces the barriers to free movement of goods and persons • increases access to the market for goods and services. • promotes cross-border trade and investment • fosters regional integration.

4. Africa’s Infrastructure Deficit Source: Yepes et al. (2008)

5. Economic Community of West African States(ECOWAS) • 15 Countries: Benin, Burkina Faso, Cape Verde, Cote d’Ivoire, The Gambia, Ghana, Guinea, Guinea Bissau, Liberia, Mali, Niger, Nigeria, Senegal, Sierra Leone, and Togo. • ECOWAS trade liberalization scheme • elimination of customs duties and taxes having equivalent effect on products from member states • abolition of non-tariff barriers between member state exchanges • organization of trade fairs etc.

6. Dakar-Lagos Highway • Provides the most direct road connection between the capitals of the countries along its alignment. • Covers a total of 4010 km of which 3260 are paved in various areas. Source: AfDB (2003)

7. The Gravity Model • Describes economic activities that have the properties of the Newton’s law of gravity i.e. contains some elements of volume and distance e.g. trade and immigration. • The volume of trade between two countries is directly proportional to the economic size of the countries and inversely proportional to the distance between the countries

8. Model contd • i: Originating country; j: Destination country • Exportij:Export from i to j ; GDPi: GDP of i ; GDPj: GDP of j • Distij: Road distance between iand j • Qualij: Average road quality between iand j • DGDPPCij: Positive difference between GDP per capita of i and j • Lang.Fr: Dummy variable =1 if iand j are Francophone • Lang.En: Dummy variable =1 if iand j are Anglophone • CB: Dummy variable =1 if iand j are share a common border

9. Model Contd. – Road Distance • measured as the distance between the capital/reference cities of the countries on the Lagos-Dakar highway

10. Model Contd – Road Quality Index • Qi: road quality index of country i. • Ri : percentage of roads that are paved in country i • Gi : GDP per capita of country i as a proxy for capacity to maintain roads • Ci : World Bank’s Country Policy and Institutional Capacity (CPIA) index • We specify a mildly increasing-returns function (a1=0.8, a2=0.2, a3=0.2)

11. Road Quality Index by Country

12. Model contd. • The road quality between i and j is measured as the distance-weighted road quality index for transit countries • The model covers 110 observations • Ordinary Least Squares • The dependent variable is truncated at zero • OLS will produce biased and inconsistent results • Tobit postulation is more appropriate

13. Result

14. Impact Increase in the average road quality between Lagos and Dakar from its current level to the level of roads in South Africa Completion of the Lagos-Dakar highway The average road quality from Dakar to Lagos, relative to the index of quality of road in South Africa (i.e. 100), is 20.38. Increasing the Lagos-Dakar average road quality from 20.38 to 100 (i.e. 391% increase) Equivalent to a 5.27 increase from its current level. Increasing intra-regional trade by US$397.80million

15. Conclusion • Improvement in the quality of road will increase movement of factors of production which will foster intra-regional trade in the short, medium, and long terms. • other “soft” infrastructures are needed to fast-track the achievement of the objectives of the ECOWAS trade liberalization scheme. • However, increasing the quality of roads demands huge financial investment, thus a cost-benefit trade-off must be carefully considered.

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