The trend and impact of terms of trade shocks on the overall macroeconomic behaviour have been a recurring issue in the open market economy and have strong implication in designing and implementing development strategies and policies. There has been a growing research programme examining the link between domestic economic activity and trade shocks. Some studies conclude that trade shocks play an important role in driving macroeconomic fluctuations. Others find that trade disturbances account for only a small fraction of the variation in output. Recognizing the existing literature, this current study extends the frontier of the knowledge on the nexus between terms of trade and macroeconomic performance by examining the impact of terms of trade shocks on macroeconomic performance in ECOWAS generally and in WAMZ and WAEMU using a panel vector autoregressive (PVAR) model. ECOWAS economy has been plagued by twin problems of adverse terms of trade shock and poor macroeconomic environment. What does this scenario portend for African economy in general and the ECOWAS sub-region in particular, since terms of trade is one of the most important relative prices in economics? This study, therefore examined the effects of terms of trade shock on the macroeconomic performance in ECOWAS on one hand and the reversed effect of these macroeconomic variables on terms of trade shocks. In line with our objectives, four research hypotheses were test. We decomposed the ECOWAS economy into two financial blocs (West Africa Monetary Zone and West Africa Economic and Monetary Union), and then assessed the responsiveness of macroeconomic variables to terms of trade shock in these blocs; and also the responsiveness of terms of trade shock to a unit shock in macroeconomic variables. The study adopted the restricted PVAR model with application of impulse response analysis and variance decomposition test and covers the period from 1990 to 2015.
Table of Contents
1. Introduction
1.1 Background to the Study
1.2 Statement of the Problem
1.3 Research Questions
1.4 Objectives of the Study
1.5 Research Hypotheses:
1.6 Significance of the Study
1.7 Scope and Limitation of Study
2. Review of Related Literature
2.1 Preamble
2.2 Theoretical Literature Review
2.3 Empirical Literature Review
2.4 Justification of Study
3. Research Method
3.1 Preamble
3.2 Theoretical Framework
3.3 Model Specification
3.4 Estimation Technique and Procedure
3.5 Evaluation of Estimates
3.6 Test of Research Hypotheses
3.7 Nature and Source of Data
4. Data Presentation, Analyses and Discussion of Findings
4.1 Preamble
4.2 Data Presentation
4.3 Data Analysis
4.4 Evaluation of Estimates/Research Hypotheses
4.5 Discussion of Findings
5. Summary of Findings, Conclusion and Recommendations
5.1 Preamble
5.2 Summary of Findings
5.3 Conclusion
5.4 Recommendations
5.5 Contributions of the Study to Knowledge
Research Objectives and Key Topics
The primary objective of this thesis is to assess the performance of the ECOWAS economy amidst persistent terms of trade shocks, utilizing a Panel Vector Autoregressive (PVAR) model to examine the bidirectional relationship between trade shocks and macroeconomic variables from 1990 to 2015.
- Impact of terms of trade shocks on macroeconomic performance in ECOWAS.
- Influence of macroeconomic variables on terms of trade shocks.
- Responsive behavior of macroeconomic variables to terms of trade shocks in WAMZ and WAEMU blocs.
- Empirical documentation of terms of trade volatility across twelve selected West African nations.
Excerpt from the Book
2.2.1 Conceptual Issues
It is necessary that the key concepts in this study be explained so that one gets a clear understanding of the whole subject. These important concepts which are of value in this study are: terms of trade, terms of trade shocks and macroeconomic performance.
1. Terms of trade:
Terms of trade is the ratio of the prices of a country's exports to the prices of its imports. It measures the number of units of imports that can be exchanged for a unit of exports. It can be interpreted as the amount of import goods an economy can purchase per unit of export goods. Changes in the terms of trade have an especially strong impact on the macroeconomic performance and incomes of commodity-exporting developing countries.
In the more realistic case of many products exchanged between many countries, terms of trade can be calculated using a Laspeyres Index. In this case, a nation's terms of trade is the ratio of the Laspeyre price index of exports to the Laspeyre price index of imports. The Laspeyre export index is the current value of the base period exports divided by the base period value of the base period exports. Similarly, the Laspeyres import index is the current value of the base period imports divided by the base period value of the base period imports.
Summary of Chapters
Chapter One: Introduces the study by providing background information on the ECOWAS region, outlining the research problem regarding trade openness and commodity dependence, and stating the specific research objectives and hypotheses.
Chapter Two: Reviews the theoretical literature on business cycles, including Hawtrey’s monetary theory and Samuelson’s multiplier-accelerator model, and summarizes empirical studies on terms of trade shocks.
Chapter Three: Details the research methodology, specifically the application of the Panel Vector Autoregressive (PVAR) model, variable identification, and data sources used to analyze the economic relationships.
Chapter Four: Presents the empirical data and analysis, including stability tests, impulse response functions, variance decomposition, and the evaluation of research hypotheses through a confidence interval approach.
Chapter Five: Summarizes the major research findings, draws conclusions regarding the impact of terms of trade shocks on the regional economy, and offers policy recommendations for improving macroeconomic performance.
Keywords
ECOWAS, Terms of Trade Shocks, Macroeconomic Performance, Panel Vector Autoregressive (PVAR), WAMZ, WAEMU, GDP Growth, Inflation, Money Supply, Real Exchange Rate, Business Cycle, Trade Openness, Commodity Exports, Impulse Response Function, Variance Decomposition.
Frequently Asked Questions
What is the primary focus of this research?
The research focuses on the relationship between terms of trade shocks and macroeconomic performance within the ECOWAS region, specifically analyzing how these shocks affect economic indicators and vice versa.
Which economic blocs are analyzed in the study?
The study decomposes the ECOWAS economy into two primary financial blocs: the West Africa Monetary Zone (WAMZ) and the West Africa Economic and Monetary Union (WAEMU).
What is the central research question?
The study investigates whether terms of trade shocks significantly impact the macroeconomic performance of ECOWAS economies and if macroeconomic variables, in turn, influence these trade shocks.
What scientific methodology is utilized?
The research employs a panel vector autoregressive (PVAR) model, complemented by impulse response analysis and variance decomposition, using annual panel data from 1990 to 2015.
What are the main variables considered in the model?
The variables include Gross Domestic Product growth (GDPG), inflation rate (INF), terms of trade shocks (TOTS), money supply growth (MSG), and the real exchange rate (RER).
Which countries are included in the sample?
The study analyzes twelve selected West African countries, including Benin, Burkina-Faso, Côte d’Ivoire, Cape Verde, the Gambia, Ghana, Guinea-Bissau, Mali, Niger, Nigeria, Senegal, and Togo.
How does the study address individual heterogeneity?
The panel vector autoregressive (PVAR) approach allows for individual country heterogeneity by introducing fixed effects and using country-specific time dummies within the estimation procedure.
What is the significance of the "confidence interval approach" in this study?
The author favors the confidence interval approach over the traditional test of significance to emphasize the economic significance of the independent variables rather than solely relying on statistical significance.
- Citar trabajo
- Uzodigwe Anthony (Autor), 2017, Terms of Trade Shocks and Macroeconomic Performance. Evidence from Ecowas Member States, Múnich, GRIN Verlag, https://www.grin.com/document/382040
