I've known for a while that Ghana is now among the leading holiday destinations for Nigerians. Many of them make the 45min hop by air on Friday evenings, chill out at our hotels and fly back Sunday evening. Quite a few of them come for the shopping as well.
While in business school, we learnt in our economics and international trade classes about David Ricardo's comparative advantage theory (extended by Hecksher & Ohlin) as the key basis of trade among nations. Krugman's New Trade theory (NTT) was never mentioned, something to be discovered by those who chose to read widely. The limited trade volume between West African countries has always been explained away by the fact that we produce quite similar goods: cocoa, timber, minerals. These commodities have left us at the mercy of international demand and supply factors that we have little control over.
However, a disproportionate share of international trade now takes place among western nations that produce similar goods. Krugman won the Nobel Prize for Economics this year for his empirical analysis and formulation of the NTT to explain this reality. Basically:
- Where production takes place is influenced by the ability to achieve economies of scale.
- Consumers appreciate diversity in their consumption. Specialisations by different countries in different brands of the same good will make trade possible and increase consumers' welfare. This is why Germany, a country that makes Mercedes cars will import Volvo from Sweden while exporting it's Mercs to the same country.
- Trade (and production) may be obstructed due to high transport costs. If it's not easy for labour to move around, nominal wages may be high because it cannot move to where it's needed. Distribution of finished goods is expensive. Therefore the welfare of consumers is less than it could be.
It is unfortunate that in the year that attention has been drawn to this theory, a theory that (West) African countries should be keenly aware of, all events have been overshadowed by the US elections and the credit crunch. Traveling in (West) Africa can be hell, at the borders, at the numerous police checkpoints on the highways, etc. Different tarrif regimes and other bureaucratic nightmares increase administrative costs of businesses that trade across borders. These are probably the main culprits rather than similarities in goods produced.
It seems to me that it is marginally easier to trade services. Nigerians (and others) can enjoy Ghana's tourism easily. Foreign nationals are a significant market for Ghanaian colleges. We are beginning to see some health tourism too. These are growth sectors for Ghana. Perhaps the only politician with an intuitive grasp of this potential is Yaw Osafo-Marfo, our former Finance Minister. I say this based on his manifesto when he run for (and lost) the New Patriotic Party leadership. If he gets another chance to influence policy, those engaged in these sectors could see some exciting times.
Increased trade is possible, and desirable, among the 260m people of West Africa. We only need to make it happen.
