WAEMU Zone Research Articles

Financial Liberalization and Banking Risks in the Waemu Zone: Do Fintechs Matter?

This study aims to examine the role of fintech development in the relationship between financial liberalization and banking risks in WAEMU countries. To do this, we used macroeconomic data from WAEMU countries, except of Guinea Bissau, due to lack of data, over the period 2011-2021. Methodologically, we use the PCSE (Panel-Corrected Standard Error) method of Beck and Katz (1995). The results revealed that fintechs amplify the banking risk reduction effect of financial liberalization. In terms of economic policy implications, the study suggests that the authorities should step up the process of financial liberalization and pay particular attention to adequate regulation of fintechs.

Hybrid Yield curves modeling in WAEMU Zone

In the WAEMU zone (West African Economic and Monetary Union.), the development of the financial market is hampered by uncertainties related to information asymmetries. In order to reduce them, this study proposes a quantitative model for evaluating the hybrid zero-coupon (ZC) yield curve, which takes into account investors’ perception of risk. This innovative approach is based on the model of the risk-free rate curve, as well as the model of decomposition of the term structure of risk premia, which results in the explicit formulation of the term structures of credit risk and liquidity premiums and the anticipated recovery rate by the financial market in the event of issuer default. Over the period 2019-2023, the empirical application reveals that the hybrid ZC yield curve is sensitive to monetary policy decisions, as well as to the parameters of the risk-free yield curve. Moreover, the term structure of the risk premiums becomes stable when it is estimated by a hybrid model, composed of three extreme probability distributions, namely the Weibull-Gumbel models for interpolation and Log-Normal for extrapolation.

Impact of Subprime and Covid-19 crises on WAEMU stock exchange efficiency: a classic Hurst vs dynamic Hurst approach

Financial markets are alternative sources of financing, above all, in the current context of financial globalization and the development of information and telecommunication technologies. In the WAEMU zone in particular, the size of the economies seemed insufficient to supply national markets without high costs. The union’s authorities therefore set up a regional market that seemed to be a beneficial outcome : the WAEMU stock market. This stock exchange has undergone significant modernizations since its inception, with the aim of achieving optimal resource allocation. The informational efficiency of this stock exchange has become a hot topic of interest among researchers and professionals, giving rise to a growing number of publications on the subject. Our article is set in this context and aims to analyze the WAEMU’s weak-form efficiency. Based on the limitations of traditional methods, we use new approaches. Firstly, the classic Hurst is a tool for characterizing market structure and analyzing efficiency. The results highlight the multifractal nature of the WAEMU’s market and the rejection of the null hypothesis of no memory in the return series. Given the resurgence of crises, it would be interesting to analyze stock market behavior during such events. We also study the impact of crises (subprime and covid-19) on efficiency, using the dynamic Hurst exponent to account for efficient market varying with time. The results show that during periods of crisis, the stock market alternates between efficiency and inefficiency. They also reveal that Covid-19’s impact was faster than subprime crisis. They also reveal that covid impact crisis was faster than that of subprimes. However, despite the big spike linked to the covid context, the composite index picked up and continued in the same vein.

The Effect of ICT on the Development of Bank Branches in the WAEMU Zone: An Application of Negative Binomial Regression

The main objective of this study is to analyze the effect of ICT on the number of bank branches in the WAEMU. Based on the total of eight (08) member countries of the union, from 1995 to 2022, it employs the negative binomial (BN) regression method for the estimations. The results of the study show that among the ICT variables selected, only mobile and fixed-line telephone subscriptions have a statistically significant and positive effect on the number of bank branches in the union. The Internet and the number of ATMs have no significant effect on the number of branches, although they remain negatively correlated with the number of bank branches. On the other hand, the number of banking institutions and the size of these banks encourage the opening of new bank branches.

Threshold Effect in the Bank Lending Channel of Monetary Policy Transmission and the Role of Bank Portfolio Deterioration: A PSTR Specification in the WAEMU Zone

The objective of this paper is to analyse the influence of monetary policy on credit supply in the WAEMU zone over the period 1996-2017. The study focuses on the WAEMU countries, except for Guinea-Bissau, due to the unavailability of sufficient data. We apply the Panel Smooth Transition Regression (PSTR) model of Gonzalez et al. (2005). The results reveal the non-linearity of the link between monetary policy and credit supply. There is a threshold of credit risk exposure of 8.726% above which monetary policy loses its effectiveness. Indeed, monetary policy has a positive effect on the supply of credit when the value of the gross bank portfolio deterioration rate is less than or equal to the threshold of 8.726% and an insignificant effect above this threshold. Above this threshold, the link between monetary policy and bank credit supply is distended. In this case, it is the level of economic activity that stimulates the supply of bank credit in this area. These results indicate that the effectiveness of the monetary policy conducted by the Central Bank of West African States (BCEAO), through the bank credit channel, should take into account the level of credit risk attained by banks. Thus, the study recommends that the authorities further strengthen prudential supervision within the WAEMU.

Effect of the convergence criteria pact on financial performance in the WAEMU zone

Effect of the convergence criteria pact on financial performance in the WAEMU zone

Effect of the convergence criteria pact on financial performance in the WAEMU zone

Effect of the convergence criteria pact on financial performance in the WAEMU zone

Modeling and Solving a Linear Integer Problem (PLNE) for the Optimal Localization of a Hub Air Transport in the WAEMU Zone

In this article, we propose a linear integer model for the optimal location of a hub for air traffic in the WAEMU zone. A hub represents for an airline a base where an essential part of its activities is concentrated. Its location must therefore be judiciously determined. The hub location problem is one of the new and promising areas of research in the field of location theory. In order to satisfy a demand, the location of the hub involves the movement of people, goods between origin destination pairs required. Hubs are applied to reduce the number of transport links between the origin and destination airports The proposed model minimizes the distances and takes into account the flow of passengers registered in the different airports and minimizes the total cost of the transfer via the hub airport. The simulations were made with the programming language Python.

Heterogeneous Monetary Zone and Macroprudential Policy: The Case of the Waemu Zone

This article raises the question of the conduct of a common macroprudential policy aimed at correcting specific financial imbalances in the presence of structural heterogeneity that characterizes the monetary zone, in this case the WAEMU zone. For this reason, we develop a neo-Keynesian DSGE[1] model in an open economy with two countries, namely the core countries and those of the periphery, with increased financial frictions. The results show that in the presence of structural heterogeneities, country-adjusted macroprudential measures, as opposed to a common macroprudential policy, are the best way to reduce specific financial imbalances. However, in financially integrated economies, the existence of negative externalities implies the need to coordinate national macroprudential policies in order to increase the degree of currency area optimality.[1] Dynamic Stochastic General Equilibrium

Modeling and Solving a Linear Integer Problem (PLNE) for the Optimal Localization of a Hub Air Transport in the WAEMU Zone

In this article, we propose a linear integer model for the optimal location of a hub for air traffic in the WAEMU zone. A hub represents for an airline a base where an essential part of its activities is concentrated. Its location must therefore be judiciously determined. The hub location problem is one of the new and promising areas of research in the field of location theory. In order to satisfy a demand, the location of the hub involves the movement of people, goods between origin destination pairs required. Hubs are applied to reduce the number of transport links between the origin and destination airports. The proposed model minimizes the distances and takes into account the flow of passengers registered in the different airports and minimizes the total cost of the transfer via the hub airport. The simulations were made with the programming language Python.

FISCAL DISCIPLINE AND REAL EXCHANGE RATE STABILITY IN A HETEROGENEOUS MONETARY UNION: THE CASE OF WAEMU

This research work aims to analyze the nominal convergence of budgetary variables resulting from the respect of the convergence criteria and the impact of convergence indicators on the exchange rate volatility inner the WAEMU members States. From that end we have conducted the empirical analysis of budgetary convergence in the WAEMU zone by using variables such are: expenditure, incomes and budgetary balances. In order to reach our goal, we have adopted the methodology used by Barro et Salai-Martin (1992) which methodology is implemented by the European Union through the work of Villien et al. (2003). This methodology is consisted of following in the course of the timing an indicator of variable dispersion which may stand as a typical margin or the variance. The results show a global trend to budgetary variables convergence. And then, we have assessed the different indicators of sigma convergence on the profitable exchange rates differential in the WAEMU zone. The model used has revealed the existence of a mechanism of correcting error between the desired exchange rate observed in the zone.

Endogenous threshold effects and transmission channels of foreign aid on economic growth: evidence from WAEMU zone countries

This paper analyses threshold effects and transmission Channels of foreign aid on economic growth of WAEMU countries using the World Bank, the International Monetary Fund and the International Country Risk Guide databases to cover the period spanning from 1980 to 2018. After applying endogenous threshold approach to determine aid threshold above which its affects growth and estimate its long-term effects, Pagan’s Residual-Generated Regressors method was used to identify channels that can modulate effects of aid on growth. Evidences strongly support the view that the relationship between aid and economic growth is non-linear with a threshold that lies between 12.37 and 14.08% of GDP. Above these values, the marginal effect of aid is 2.1%. Moreover, results indicate that only investment seems to be a potential channel through which aid would affect growth. Thus, aid within the WAEMU countries is beneficial. Its content and use should be the main concern of donors and policy-makers.

The Resilience of African Banks in the COVID-19 Crisis: A Study on the Macroprudential Stress Test of Banks in the WAEMU Zone

The Resilience of African Banks in the COVID-19 Crisis: A Study on the Macroprudential Stress Test of Banks in the WAEMU Zone

Governance, Financial Development and Economic Growth in the WAEMU area: Evidence from panel ARDL analysis

The objective of this work is to estimate the long-term effects of governance quality on financial development and the real sector growth in WAEMU zone covering the period of 1996 to 2018. To this end, we utilize the Pooled Mean Group (PMG) method to estimate a nonlinear panel through the ADRL model proposed by Pesaran et al., (1999) and Pesaran and Smith, (1995). The results show that the quality of certain governance factors determines the financial system and its capacity to accelerate growth in long run. The study demonstrates that the marginal effect of financial development on growth is about 0.69 point for a given threshold of governance quality. This outcome means that financial development affects positively growth and the governance level sustains that positive effect despite the poor quality of governance comprises between -1 and 1. Therefore, an improvement of governance quality will provide a favourable environment for financial development and consequently for economic growth. The study finally calls policy maker to more strengthen democracy and rule of law, this could offer more guarantees to banks for granting long-term credits. JEL classification numbers: C23, E44, G21. Keywords: Growth, Financial development, PMG, MG, WAEMU.

Output gap in the WAEMU zone: Comparative analysis of estimate by production function, Kalman filter and Bayesian structural VAR

The potential output and output gap concepts are important tools for central banks, and in particular the Central Bank of West African States (BCEAO), to forecast inflation in pursuit of their priority objective of inflation control. The choice of a method for estimating inflation is a delicate one. This paper proposes an estimation of potential output by the unobservable component methods, Watson's (1986) and Kuttner's (1994) approach, and by an economic modelling method, namely the Bayesian structural VAR. It also proposes a comparison of these different methods with the production function, which is widely used in the literature and recognized as the best method for estimating potential output for WAEMU countries. The results indicate that the different approaches as well as the production function explain the different crisis periods identified within the union. The comparative analysis, against all expectations, reveals that only the output gap obtained by the production function does not explain inflation.

Urbanization, Gender and Economic Growth in the Waemu Zone: Evidence from Pooled Mean Group Estimation

This study empirically analyses the influence of urbanization and the participation of men and women in the labour force on economic growth in the countries of the West African Economic and Monetary Union (WAEMU). Using data from the World Bank (2017) on the member States between 1990 and 2016, we show from Pesaran’s PMG estimator, Shin and Smith (1999) that in the short term, youth and women are very useful for economic growth. In the long term, urbanization, industrial added value and the elderly make a positive contribution to economic growth. The study urges governments to create better living conditions by ensuring adequate income levels and care, i.e., public policies should aim to increase employment, establish or improve social protection, social integration, health and the fight against discrimination.

Analysis of the Determinants of Export Diversification in the Franc Zone: A Comparative Study in WAEMU and CAEMU Countries

The objective of this study is to analyze the determinants of export diversification in the 14 countries of the Franc Zone and compare them between WAEMU and CAEMU zones. Export diversification leads to sustainable economic growth, a satisfactory balance of payments, job creation and income redistribution. To this end, the study uses Bruno (2005a, b) LSDVC econometric estimation methods over the period 1990-2015 to identify factors that may or may not improve export diversification in these countries. The main lesson of this study is that more factors favor diversification in WAEMU countries compared to those in the CAEMU zone. In addition, we note a U-inverse relationship between per capita income and diversification in the WAEMU zone while a U-shaped relationship is observed in the second zone. Moreover, the results on the Franc Zone as a whole show that the most relevant explicative factors of export diversification are: human capital, economic development, financial liberalization, degree of trade openness, public investment and the index of democracy.

The Determinants of Inflation in West Africa

The objective of this study is to identify the determinants of inflation in West Africa, mainly in the WAEMU zone, in order to contribute to improving the conduct of monetary policy. The equation of the exchange of the Quantitative Theory of the Currency and the generalized method of moments (MMG) in dynamic panel is used. Annual data concerning six countries in West Africa and range from 1991 to 2015. The results of the estimation show that in addition to the economic growth rate and the money supply, the devaluation has a significant effect on inflation. As we can see, inflation is not systematically a monetary phenomenon in West Africa. The authorities must therefore seek to determine the optimal threshold for the rate of increase of the money supply.

Advent of Islamic microfinance in Senegal

In Senegal, as elsewhere in the WAEMU zone, access to credit for vulnerable micro entrepreneurs is a major concern despite the important role of traditional microfinance institutions. To effectively solve this problem, Islamic microfinance has been identified as an alternative offer, alongside conventional finance in order to give access to bank accounts to those underprivileged people that have not been sufficiently served by financial institutions. Thus, this article aims to study the advent of Islamic microfinance in Senegal. To do this, our research focuses on the history and role of the State of Senegal in the promotion of Islamic microfinance to finally present the characteristics of this new funding model for vulnerable populations often excluded from the traditional financial system.

Bank Concentration and Interest Rate Margin in WAEMU Zone

ABSTRACTThe objective of this paper is to analyse the impact of banking concentration on bank margin. We adapt the specification of [Corvoisier, S., & Gropp, R. (2002). Bank concentration and retail interest rates. Journal of Banking and Finance, 26, 2155–2189] to introduce the number of agencies in capital cities and provinces. We then show that in the short term, only the big four banks have a negative influence on net interest margins in the WAEMU zone. In the long term, the number of agencies in provinces and banking risks are positively linked to bank margin. The policy of opening agencies in provinces as well as credit risk contribute to increasing the cost of long-term credit in the WAEMU zone.