Fiscal variables and growth convergence in the ECOWAS

Abstract

Purpose– The purpose of this paper is to assess the relationship among fiscal variables (net lending, government expenditure and revenue) and economic growth in Sub-Saharan African countries.Design/methodology/approach– Using yearly data for the period between 1980 and 2011 in 15 Economic Communities Of West African States (ECOWAS) countries, the relationship among fiscal variables, economic growth and trade is investigated, through various econometric techniques.Findings– Government expenditure and revenue show pro-cyclical effects in West African Economic and Monetary Union (WAEMU) and ECOWAS countries, while fiscal balance has a pro-cyclical nature for WAEMU during the years 1999-2011. Moreover, a weak long-run relationship between government expenditure and revenue emerge, but only in the case of West African Monetary Zone (WAMZ) countries. Granger causality analysis showed mixed results for WAEMU countries, while for four out of six WAMZ countries (Gambia, Liberia, Nigeria, and Sierra Leone) the “tax-and-spend” hypothesis holds, since government revenue would drive the expenditure. Finally, in the last three decades, cyclical component of economic growth has reduced its fluctuations, both for WAEMU and WAMZ member States.Originality/value– This is the first study on the effects of fiscal policies in the ECOWAS countries.