Monetary integration in West Africa: Are business cycles converging?

Abstract

AbstractThe aim of this paper was to test the hypothesis of business cycle convergence in member countries of the Economic Community of West African States (ECOWAS) engaged in a monetary union process. We applied the concepts of beta‐convergence and sigma‐convergence to business cycles in the region in the period 1990–2018. Two analytical approaches suggested that during this period, the hypothesis of the convergence of business cycles cannot be rejected. The study highlighted the positive effect of trade intensity on the convergence of member countries’ business cycles, in line with the theory of the endogeneity of optimum currency area criteria. These results imply that the initial asymmetric nature of the business cycles of ECOWAS countries does not represent an economic obstacle to the creation of a monetary union in the zone. This cyclical convergence is likely to accelerate with the intensification of trade resulting from the newly created union owing to deeper financial integration and the elimination of transaction costs and uncertainty associated with exchange rate volatility.