Current Account Sustainability in ECOWAS Sub-Regional Blocs: A Double Cointegration Investigation

Abstract

The aim of this paper is to study the sustainability of current accounts in ECOWAS countries over the 1970–2015 period and test if this sustainability depends on the sub-regional blocs. The paper uses a formal theoretical framework, recent panel and intra-panel cointegration techniques to test for long-run relationship between variables. Therefore, results from panel analysis show that; although exports and imports plus interest payments on external debt are cointegrated, the current accounts are weakly sustainable in WAEMU and strongly sustainable in WAMZ bloc. They also reveal that this sustainability has been lower for countries operating a fixed exchange rate regime (WAEMU) than countries operating a flexible regime (WAMZ). Results from intra-panel analysis show that some countries with a fixed regime rate like, Benin, Burkina-Faso and Togo, are in violation of their international budget constraints and should therefore put in place policies to reduce their current account deficits in order to regain their external stability. And for the other country members of WAEMU where sustainability was found to be weak, they should also implement policies to reinforce the sustainability of their current accounts.