The 15 West African countries as an optimum currency area and the role of labour mobility in the adjustment to asymmetric shocks

Abstract

This paper assesses the nature and correlation of shocks in Economic Community of West African States (ECOWAS) countries and investigates the readiness of member countries for the formation of a monetary union. It also assesses the role of labour mobility as an adjustment mechanism to asymmetric shocks. Structural vector autoregression (SVAR) models are used in assessing the nature and correlation of shocks while cointegrated panel autoregressive distributed lag (ARDL) models are employed to examine the role of labour mobility in the adjustment process to asymmetric shocks. The results show that the ECOWAS region is characterised by asymmetric shocks. The study also finds that most countries failed to consistently meet the convergence criteria for the formation of the monetary union and that labour mobility in the region is low to act as an efficient adjustment mechanism to asymmetric shocks. It takes about 2–5 years for member countries to adjust to asymmetric shocks through labour mobility.