Labour Productivity and Economic Growth in the WAEMU Region: Both a Puzzle and a Key to Economic Development?

Abstract

This article empirically investigated the causal relationship between labour productivity and economic growth in the West African Economic and Monetary Union (WAEMU) region. Recent panel cointegration and Granger causality techniques were adopted to analyse this relationship for the period 1994 to 2018. For robustness checks, three main Granger causality tests were applied in the context of panel VAR, namely: (a) the standard stacked Granger causality, (b) the Dumitrescu and Hurlin (2012) Granger causality, and (c) the Toda and Yamamoto (1995) augmented VAR approach to Granger causality. Contrary to the previous literature and general beliefs, the study found no evidence (neither in the short-run nor in the long-run) of a causal relationship between labour productivity and economic growth in the WAEMU region. The finding suggested that, as long as one considers labour input a determinant of economic growth, the latter is rather intensive labour-based than efficient labour-based in the case of WAEMU. This puzzling result can be explained by the low structural level of labour productivity stemming from the very high proportion of informal employment in these countries. The finding provided important policy implications for the WAEMU countries notably in terms of improving labour productivity in the informal economy, which appears to be the fundamental key to economic development in these countries.