Examining the impact of intra-industry trade on business cycle alignment within the ECOWAS

Abstract

Purpose

This paper aims to examine the impact of intra-industry trade on business cycle synchronization within the Economic Community of West African States (ECOWAS). ECOWAS region is characterized by limited intracommunity trade and a low level of foreign direct investment.

Design/methodology/approach

First, this research uses the two-digit level harmonized system classification to measure intra-industry trade, which is straightforward to interpret and compute, making it suitable for countries with low trade intensity. Second, it uses the system generalized method of moments (system-GMM) to examine the dynamic relationship between variables and address endogeneity concerns.

Findings

The results obtained from the system-GMM estimation reveal a positive and significant correlation between intra-industry trade intensity and business cycle synchronization, as well as an inhibiting effect of economic freedom on the relationship between intra-industry trade and business cycle synchronization. These results highlight the need to implement policies aimed at reducing tariff barriers, improving financial integration and intensifying production.

Originality/value

This research analyze the link between intra-industry trade and business cycle synchronization within the ECOWAS. It also analyze the role of economic freedom on the link between intra-industry trade and business cycle synchronization.

Citation

Diendere, L.-J.B., Diendere, A.A. and Eggoh, J. (2024), "Examining the impact of intra-industry trade on business cycle alignment within the ECOWAS", International Journal of Development Issues, Vol. 23 No. 3, pp. 489-511. https://doi.org/10.1108/IJDI-12-2023-0304