Abstract
This paper empirically examines the suitability of monetary union in East African community members namely, Burundi, Kenya, Rwanda, Tanzania and Uganda, on the basis of business cycle synchronization. This research considers annual GDP (gross domestic product) data from IMF (international monetary fund) for the period of 1980 to 2010. In order to extract the business cycles and trends, the study uses HP (Hodrick-Prescott) and the BP (band pass) filters. After identifying the cycles and trends of the business cycle, the study considers cross country correlation analysis and analysis of variance technique to examine whether EAC (East African community) countries are characterized by synchronized business cycles or not. The results show that four EAC countries (Burundi, Kenya, Tanzania and Uganda) among five countries are having similar pattern of business cycle and trend from the last ten years of the formation of the EAC. The research concludes that these countries, except Rwanda, do not differ significantly in transitory or cycle components but do differ in permanent components especially in growth trend. Key words: Business cycle synchronization, optimum currency area, East African community, monetary union, development.
Highlights
The criteria of collectivism and unity have always been considered as one of the strength in the discourses of development that either considered economic or social development (Alam, 2009a; Alam et al, 2009b)
This paper empirically examines the suitability of monetary union in East African community members namely, Burundi, Kenya, Rwanda, Tanzania and Uganda, on the basis of business cycle synchronization
After identifying the cycles and trends of the business cycle, the study considers cross country correlation analysis and analysis of variance technique to examine whether EAC (East African community) countries are characterized by synchronized business cycles or not
Summary
The criteria of collectivism and unity have always been considered as one of the strength in the discourses of development that either considered economic or social development (Alam, 2009a; Alam et al, 2009b). Regional union for the development and cooperation has played a critical role towards development, while many regions are struggling to be independent, thinking a microeconomic perspective (Bénassy-Quéré and Coupet, 2005) when many regions, having same culture, attitude and norms are trying to be in consensus of forming monetary union in order to be a macro voice of development (Cooper, 2000; Jabko, 1999) Considering these views, European Union (EU) was formed, increase success of EU shows a way that testify how unity, harmony, team work and team spirit can play a rigorous role for the development. It provides a wider response and swift service for the citizens to work faster in the business and daily life at the age of globalization
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