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SUMMARY, CONCLUSION AND RECOMMENDATION

6.1 Summary

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under conditions of ‗monopolistic competition‘. The model of North-South trade based on vertical product differentiation is adopted as theoretical framework for this study. Flam and Helpman (1987) developed a model of North-South trade based on vertical product differentiation (that is, differentiation according to quality). They assumed that two commodities exist: homogeneous product and a vertically differentiated product. The North produces and exports high quality, high cost varieties, while the South exports low quality, low cost varieties. Given an overlap in income distribution, there exists IIT.

They predicted further that the share of IIT depends on relative country size, income distribution in both trading countries, and the dividing income classes.

In order to achieve the stated objectives, the researcher considered the highest ECOWAS trading partner-EU. Three ECOWAS countries that account for the over 75 per cent of total trade of the region were selected: Nigeria, Ghana and Cote d‘Ivoire. To examine the extent of IIT between ECOWAS and EU, the researcher used unadjusted and adjusted Grubel-Lloyd (G-L) index on the 6-digit Harmonized Tariff Schedule with 5209 commodity classifications. The Greenaway, Hine, and Milner, (1998) method was used to disentangle the products into vertical and horizontal trade flows. Since the researcher is interested in final and intermediate products separately, the intermediate goods were separated from final goods. The researcher concord from the BEC codes to the HS rev.1 codes using a correspondence table published by the United Nations. BEC in terms of the Harmonised System, Revision 1, maps the goods according to the end-use classes. When this was done to the selected countries‘ trade flows with the EU, the researcher was able to separate the trade flows into intermediate and final products.

The modified gravity model based on the inclusion of variables predicted by the North-South trade model with product differentiation by Flam and Helpman (1987) and other variables capable of determining bilateral trade flows was estimated. Two methods of analysis were used: the usual panel data analysis and panel data of the fractional logit model of estimation for purpose of comparison. The estimations were done for a panel of the three selected ECOWAS countries, and products panel of each of the selected countries.

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As regards the objectives of the study, the first objective examined the extent of IIT between ECOWAS and EU in final and intermediate products. This study shows that IIT in both final and intermediate products do not only exist between the selected countries in ECOWAS and the EU, but has also been increasing overtime. Specifically, for Cote d‘Ivoire and EU, IIT in final products ranged between 0.2465 in 2001 and 0.3712 in 2011. Ghana‘s IIT with EU in final products increased from 0.0679 to 0.2722 between 2001 and 2011. Nigeria‘s IIT with EU started in 2000 earlier than Ghana and Cote d‘Ivoire and it rose from 0.0471 in 2001 to 0.3851 in 2011.

In the case of the intermediate products, Cote d I‘vorie‘s IIT in intermediate products with EU increased from 0.1418 in 2001 to 0.2237 in 2011. IIT in intermediate products between Ghana and EU increased from 0.0638 in 2001 to 0.2251 in 2011. The IIT between Nigeria and EU in intermediate products increased from 0.0882 in 2000 to 0.3370 in 2011. Despite the fact that the selected ECOWAS countries recorded higher numbers of products that have IIT with EU in intermediate products, than final products, the intensity of IIT in final products outweighs the intermediate products.

The second objective sought to examine the determinants of IIT between ECOWAS and EU. The analysis was done based on aggregate ECOWAS, Cote d‘Ivoire, Ghana and Nigeria. The findings revealed that the factors that drive final IIT between ECOWAS and EU are product differentiation and income distribution. Conversely, weighted geographic distance, real effective exchange rate, and trade tariff are found to reduce the intensity of IIT between ECOWAS and EU. No evidence was found for factor endowment, average market size as theory of North-South model with product differentiation predicted. In the case of Nigeria, product differentiation and factor endowment are the major factors that drive IIT between Nigeria and EU, while exchange rate and weighted distance reduces it. Ghana IIT is found to be promoted by factor endowment, product differentiation, income distribution and average market size.

Distance was not found to discourage IIT between Ghana and EU. Cote d‘Ivoire‘s IIT with the EU was only found to be promoted by factor endowment and product differentiation.

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Lastly, the third objective of the study equally examined the factors that determine IIT.

The study showed that ECOWAS IIT in intermediate products is promoted by factor endowment products differentiation and inward foreign direct investment. Also, evidence was found that weighted geographic distance and capital –labour ratio reduces IIT in intermediate products between ECOWAS and EU. The result also shows that IIT between Nigeria and EU is enhanced by products differentiation, income distribution, and capital –labour ratio. Inward foreign direct investment, weighted geographic distance and real effective exchange rate are factors that reduce IIT in intermediate products between Nigeria and EU. In the case of Ghana, her IIT in intermediate products with the EU is intensified by factor endowment, income distribution, and average market size, while trade tariff and weighted geographic distance reduces it. Lastly, IIT between Cote d‘Ivoire and EU in IIT is enhanced by factor endowment, income distribution and product differentiation, while real effective exchange rate and inward foreign direct investment increases it.