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2 Insights from Literature

It is advantageous for countries to begin to focus on the improvement of the productivity of their manufacturing sector. This is especially when countries are beginning to think towards enhancing their global competitiveness. In Africa, this cannot be overemphasised due to the fact that there has been an over reliance on primary product by most of the countries in this region. In a policy document by the United Nations Economic Commission of Africa-UNECA (2013), the need for the development of the manufacturing sector of African countries was tied to the fact that the productivity gains that emanates from the linkages (backward and forward) between the manufacturing sectors and other sectors gives rise to increased scope for technology transfer and diffusion, and improved managerial and technological spill-overs. Generally, the manufacturing sector has also been known to be an economic growth enhancer through its functional role in capital accumulation, knowledge and managerial skills transfer, increasing economies of scale and learning by doing effects [1].

The literature on the relevance of infrastructural development on trade is rather much with reiterating stances cutting across regions. For instance, the Asian's region trade expansion was in turn facilitated and encouraged by the development of supporting infrastructure including physical and institutional infrastructure (Douglas and Jayant 2005). This massive investment in infrastructure for trade facilitation was facilitated by the structural reforms in this region that was targeted at improving the environment for investment, production and trade. In essence, countries within the region understood that the duo (infrastructure and trade) are complimentary in themselves, although there is still the need to boost infrastructural provision in this region.

In an earlier study on European countries' trade performance, the conclusion was reached that infrastructural availability drastically affected transport cost of trade (Bougheas et al. 1999). Their theoretical model predicts that for pairs of countries for which investment in infrastructure is optimal, a positive relationship between the level of infrastructure and the volume of trade is predictive. Focusing on Africa, Tomasz and Colin (2009) estimated a standard gravity model with particular reference to Africa: they concluded that trade facilitation—in the form of improved quality of the basic transport and communications infrastructure—improves export performance in Africa. Somewhat similar conclusion was reached on a global perspective by Portugal-Perez and Wilson (2012) that the marginal effect of the transport efficiency on exports appears to be decreasing with per capita income. In contrast, they emphasise that the impact of physical infrastructure on exports appears increasingly important for richer countries.

It is not surprising that infrastructure services plays a significant role in trade costs by reducing distribution margins, lowering prices and raising consumer welfare; more so, infrastructural provisions increases the profitability for exporters—by lowering transaction costs and value addition to the production process—while expanding linkages to the global distribution networks (Douglas 2005, 2008).

Of course, the influence between trade and infrastructure is expected as Nordas and Piermartini (2004) clearly highlights four possible interactions that stems from the relationship. The first is the direct monetary outlays, which covers the charges for infrastructural services. As expected, in countries with poor infrastructural service, this outlay becomes higher and even increases the overhead cost for the benefit from such services. Timeliness of delivery of goods and services is another outcome that is influenced by infrastructural services. The third is risk of damages, losses and higher insurance cost on goods produced, while poor market access is the fourth issue caused by poor infrastructure.

Noting the relevance of infrastructure on trade, it is therefore puzzling on why countries do not pay much attention to the development of this social good. In understanding these reasons, it is important to address this issue from the institutional perspective. The reason for this approach is because institutions are supposed to be a form of framework that creates incentives for public officers to consider efficient actions for the overall good of the society (Acemoglu and Robinson 2012; Efobi 2015; Asongu 2014). These actions are in the form of policies that pertains to the overall progress of the society (Blair-Henry and Miller 2008). Therefore, it is prudent to assume that states that do not experience considerable progress in infrastructural development are lacking in the development of efficient institutions to drive these progress. Francois and Manchin (2007) seem to support this suspicion.

Likewise, recent study by Cissokho et al. (2013) further buttress this stance, noting that for West African countries to maximize their agricultural export, they need to engage in investments in better infrastructure and institutional frameworks in the form of faster customs clearance and fewer police payoffs at the borders. Cissokho et al.'s study is the closest to this current study. They emphasized the role of institutions and supplemented their recommendation based on an interview carried out at two borders (Dakar-Kayes and Dakar-Bissau). Their submissions calls for the need for further investigation on the linkage between institutions, infrastructure and trade.

Also, a more compelling literature on the role of institutions on trade is emerging. Proponents of this debate have examined this linkage in diverse perspectives. Some have concluded that there is a strong relationship between investment in productivity (which affects country's trade performance) and the quality of institutions (Knack and Keffer 1995; Mauro 1995; Rodrik 1995; Brunetti and Weder 1998). On another perspective, some authors noted that weak institutional framework actually affects productivity by either reducing aggregate productivity or slowing productivity growth (Hall and Jones 1999; Olson et al 2000). Yet from another perspective, poor institution is accused for a country's poor integration in the international market because poor institutions can hurt a country's capacity to export manufactured goods (Meon and Sekkat 2008; Osabuohien and Efobi 2011).

With these compelling arguments, this current study considers the role of institutions in determining the extent of provision of public infrastructure for enhanced trade. This perspective is germane considering that poor institutional framework creates a disincentive for public officers to act accordingly for state interest. In essence, this is not about creating rules to guide behaviors of economic agents but that the emphasis should be on the rules. Thus, the behaviors of individual are only guided by the rules and not any form of informalities like norms and accepted ways of behaviors prevalent in a particular system (World Bank 1997). Putting this in context, the rising trend of poor institutions in a country will give rise to the erosion of governmental legitimacy and consequently hampers the effective delivery of public goods and services (Lawal 2007). This has been empathetically reemphasized in the case of African countries (e.g. Asiedu 2006; Asiedu and Lien 2011; Fosu 2011; Osabuohien and Efobi 2013; Efobi 2015).

  • [1] For more discussion on the importance of the manufacturing sector, see Mbate (2014), who examined industrial policy and structural changes in ECOWAS countries
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