Natural Resource Rents, Manufacturing Trade, and Manufacturing Growth: Evidence from Linear and Nonlinear Regressions for ECOWAS Countries

Abstract

This study examines the effects of manufacturing trade and natural resource rents (NRRs) on manufacturing growth in the Economic Community of West African States (ECOWAS) from 1996 to 2020. While industrialization plays an important role in the process of economic growth and poverty reduction, descriptive evidence shows a very low level of manufacturing growth in ECOWAS. The instrumental variables approach with fixed effects is applied to address the endogeneity, autocorrelation, heteroscedasticity and heterogeneity issues. We find a positive (negative) effect of manufacturing trade, manufacturing exports and intra-ECOWAS trade (NRRs) on manufacturing growth while manufacturing imports and total trade are insignificant. However, additional findings show that their effects (manufacturing trade, NRRs) vary from one country to another. Furthermore, we reveal the presence of the Laffer natural resource Curve (inverted U). Finally, the effect of manufacturing trade on manufacturing growth is mediated via NRRs. ECOWAS policymakers must rely on both manufacturing trade and intra-trade in the ECOWAS region to boost manufacturing growth. Also, better management of natural resource rents associated with good trade policies is needed to stimulate manufacturing growth.