International trade and institutional quality in West African Economic and Monetary Union countries: A causality analysis

This study explores the intricate relationship between institutions and development, with a specific focus on the causality between institutions and trade in West African Economic and Monetary Union (WAEMU) countries. We examine this causality by separately analyzing manufactured goods imports and primary products exports to understand the sensitivity of each, treating these flows in value. Using panel co-integration, panel causality, and the Poisson pseudo-maximum likelihood (PPML) model over the period from 2002 to 2021, our findings indicate a bidirectional Granger causality between trade and institutional quality. The PPML results reveal a positive and significant effect of institutional variables on imports and a negative and significant effect on exports. This implies that the low quality of institutions in WAEMU countries is detrimental to their exports of primary products. Thus, a robust institutional context can generate positive spillovers on trade and proper trade can generate significant revenues to finance the establishment of good institutions. Productive and high-performance exporting companies need to create and strengthen good institutions to remain competitive in the international economy, rather than fortifying them for personal gain to leverage political power and decision-making authority.