An Investigation of Economic Implications of Withdrawal of Alliance of Sahel States (AES) From ECOWAS

ABSTRACT This paper investigates the potential economic implications of the withdrawal of Sahelian countries (Burkina Faso, Mali, and Niger), called the Alliance of Sahel States (AES), from the Economic Commission for West African States (ECOWAS). Specifically, the paper investigates the potential impact of the AES withdrawal on trade flows (exports and imports), economic growth, migrants' remittances, and tax revenue in the Sahel States and the ECOWAS. An impulse response function (IRF) analysis, inspired by Bernanke et al., is applied using a Factor‐Augmented Vector Autoregressive (FAVAR) model, with annual data from 1980 to 2022. We find that a shock to ECOWAS intra‐community total import would lead to a marginal decline in the tax revenue of Burkina Faso and Mali. Counterintuitively, a shock to ECOWAS intra‐community exports would increase Mali's exports to the rest of ECOWAS. Moreover, trade diversion effects arising from the exit of the AES countries could increase exports for ECOWAS's three lead economies (Côte d'Ivoire, Ghana, and Nigeria). In this regard, AES countries should leverage the existing favorable trade dynamism with their respective neighboring countries (Cote d'Ivoire, Ghana, Senegal, Nigeria) through the development of bilateral cooperation initiatives and strengthen trade cooperation among them.