Inflation-Growth Nexus and Regional Integration in West Africa

Abstract

In this paper, we test the existence of an optimal inflation interval within which, the inflation of the west African countries supports economic growth. Besides this objective, we seek to test the validity of the 5% inflation threshold not to be exceeded, proposed as a convergence criterion for the fifteen countries of the region called to form a monetary union by 2020. Our analysis covers the period 2007-2016. By adopting a nonlinear approach, our investigation reveals two (02) endogenous inflation thresholds estimated at 8.01% and 15.46%. The positive effect on growth begins when inflation is comprised between the two thresholds. Above this interval, inflation has no effect on economic growth. Our results invalidate hence the 5% inflation threshold proposed as a convergence criterion and for supporting economic growth within the future monetary union. For a high-performing monetary union, preferably it would be better to define an inflation threshold between 8.01 and 15.46% as convergence criterion.