Moderating Effect of Institutional Quality on Trade Openness and Employment Generation Among West-African Countries

The main objective of this study is to empirically examine the interaction effect of institutional quality on the employment generating potentials of trade openness in the West-African sub-region. Bearing in mind the assumed potency of established trade treaties as policy enhancers, the study therefore focused on the fifteen countries in West Africa that were members of the ECOWAS community as at the year 2019 and then applied the panel ARDL technique to data obtained from these countries. The explanatory variables were trade openness (OPEN), and Exchange rate (EXRD), Multi-Dimensional Regional Trade Index (MDRTI) and level of World Trade Participation (WTP). The study employed three interaction models. The institutional variables used as the interaction variables were government efficiency, political stability and level of corruption. In order to test the sufficiency of the results obtained, a fourth model which has no interaction variable was built as a second-order model. The Akaike Information criteria supported the Panel ARDL (1,1,1,1,1,1) as appropriate for all three models while the Hausman test favoured the pool mean group (PMG) regression for the respective models. In order to sufficiently conclude that institutional variables had significant interaction effects on the explanatory variable, the study also estimated a non-interaction model using the same variables compared the results obtained with the results obtained in the respective interaction models. The results confirmed that political stability and control of corruption had significant interaction effects on trade openness and employment in the West African region. The study therefore recommended improving institutional quality as a viable means of enhancing the effectiveness of trade openness in combating unemployment in Nigeria.