West African Monetary Zone Countries Research Articles

Political Stability, Corruption, and Economic Development : Evidence frim WAMZ Countries

The paper has analyzed the political stability, corruption and economic development in the West African Monetary Zone (WAMZ) countries for the period of 2000 to 2020. The common properties of the panel data were first checked to avoid mis-specification bias and hence biased statistical results. Firstly, the CD test revealed no evidence/absence of cross sectional dependence among the countries which validates the use of traditional panel unit root that does not take account of cross-sectional dependence. The results of panel unit root test proposed by Levin et al (2002) revealed that the variables are integrated of order zero i.e. I (0). Based on this, the paper explores within the panel VAR framework. Evidence from impulse response functions revealed that, political stability and rule of low are economic development promoters while corruption hampers economic development in the region. The results from variance decomposition indicate that the variables under study contribute or hinder economic development in the WAMZ countries. Based on the results the paper recommends that, transparency and accountability at all level of government affairs as well as respecting the constitution in these nations should be preserved in order to overcome all social and political injustice among the countries under study.

Political Stability, Corruption, and Economic Development: Evidence from WAMZ Countries

This paper examines the political stability, corruption, and economic progress of the nations that make up the West African Monetary Zone (WAMZ) between 2000 and 2020. To prevent misspecification bias and therefore skewed statistical results, the common features of the panel data were examined first. First of all, the CD test did not find any evidence of cross-sectional dependency across the nations, validating the use of the conventional panel unit root, which does not account for cross-sectional dependence. According to Levin et al. (2002)'s panel unit root test, the variables are integrated of order zero, or I (0).Using the panel VAR framework as a basis, the paper investigates. Emotional intelligence data demonstrated that while corruption impedes regional economic growth, political stability and the rule of law foster it. According to the findings of variance decomposition, the factors under investigation either support or impede the WAMZ countries' economic development. Based on the results the paper recommends that, transparency and accountability at all level of government affairs as well as respecting the constitution in these nations should be preserved in order to overcome all social and political injustice among the countries under study.

Political Stability, Corruption, and Economic Development: Evidence from WAMZ Countries

This paper examines the political stability, corruption, and economic progress of the nations that make up the West African Monetary Zone (WAMZ) between 2000 and 2020. To prevent misspecification bias and therefore skewed statistical results, the common features of the panel data were examined first. First of all, the CD test did not find any evidence of cross-sectional dependency across the nations, validating the use of the conventional panel unit root, which does not account for cross-sectional dependence. According to Levin et al. (2002)'s panel unit root test, the variables are integrated of order zero, or I (0).Using the panel VAR framework as a basis, the paper investigates. Emotional intelligence data demonstrated that while corruption impedes regional economic growth, political stability and the rule of law foster it. According to the findings of variance decomposition, the factors under investigation either support or impede the WAMZ countries' economic development. Based on the results the paper recommends that, transparency and accountability at all level of government affairs as well as respecting the constitution in these nations should be preserved in order to overcome all social and political injustice among the countries under study

Public debt and economic growth in the West African monetary zone (WAMZ)

In this paper, we revisit the relationship between public debt and economic growth with a spotlight on the West African Monetary Zone (WAMZ). In the re-examination, we pursue three undertakings using both panel data and time series modelling techniques. First, we examine the linear relationship using the Autoregressive Distributed Lag (ARDL) model for time-series data and the fixed (or random) effect model for the panel data counterpart. Second, we assess the nonlinear relationship by incorporating the squared term of the debt variable as an additional explanatory variable in the models. Third, we identify the level of public debt/GDP ratio beyond which public debt becomes unsustainable using threshold regression techniques. The findings show a negative relationship across the linear models. We also establish that the debt-economic growth relationship is non-linear, and we obtain the points of inflection for the WAMZ countries. These levels are 71.9 % for Gambia, 55.8 % for Ghana, 91.5 % for Guinea, 83.7 % for Liberia, 38.45 % for Nigeria and 38.6 % for Sierra Leone. We make suggestions for the WAMZ countries to expand their economic bases by channelling funds to infrastructure development and the development of human capital in order to optimize the benefits of debt accumulation in the long run.

Assessing Macroeconomic Determinants of Banks’ Efficiency in the West African Monetary Zone

Purpose: This study assesses how six selected macroeconomic variables, namely, size of the banking system, liquid liability of the system, interest rate, inflation, gross domestic product and exchange rate affect banking system efficiency in the West African Monetary Zone countries group. Spanning a twenty-nine-year period (1992 – 2020).
 Methodology: the study used fixed and random effect models of panel least squares to analyze the relationship between these macroeconomic variables and bank efficiency of the countries as a group. Further, the study analyzed the country-by-country net effect of the selected macroeconomic variables on bank efficiency.
 Findings: We find that when examined as a group, only the positive effect of exchange rate on bank efficiency is significant. We also find reveal that the macroeconomic variables have negative effect on bank efficiency in Gambia, Ghana and Sierra Leone while they positively affected bank efficiency in Guinea, Liberia and Nigeria. Finally, we find that interest rate and inflation have causal relationship with bank efficiency in the countries as a group.
 Unique Contribution to Theory, Practice and Policy (Recommendations: We advocate that bankers in the WAMZ critically appraise their size, liquidity and interest rates vis-à-vis their efficiency goal. We also recommend that the governments of Gambia, Ghana and Sierra Leone formulate bank friendly policies especially with respect to interest rates and inflation variables that have causal relationship with bank

Impact of Foreign Reserves and Economic Growth on Money Supply: Evidence from the WAMZ Countries

This paper analyzes the impact of foreign currency reserve and economic growth on money supply using panel data from five West African Monetary Zone (WAMZ) member states from 2001-2019. The study employed the dynamic technique, fully modified ordinary least squares and dynamic ordinary least squares (FMOLS and DOLS), and the static method (fixed effect model) for the robustness check. The long run results showed that foreign currency reserves (FCR) have a positive impact on money supply, implying that a one percent increase in FCR augments money supply (M2) by 2.87%, 0.44% and 0.08%, respectively, in the long run. Similarly, economic growth is associated with an increase in money supply in both models. Furthermore, the Dumitrescu & Hurlin (2012) estimation revealed a feedback association between foreign currency reserve and money supply. This means that foreign reserves and money supply are complementary. Conversely, a unidirectional causality moving from economic growth to M2 is observed, demonstrating that economic growth causes M2. This outcome is explained by the quantity theory of money (QTM) in which the velocity of money is a positive function of total money supply. As money circulates in the economy as a result of a surge in investments, this consequently increases money stock. Similarly, investment opportunities that are being exploited day-by-day explains the growing money stock (WAMI, 2018). Central banks should endeavor to monitor the expansionary influence of net foreign assets (NFA) on money supply growth in the WAMZ by establishing suitable methods to sterilize foreign exchange infusions into the economy.

Economic Community of West African State’s (ECOWAS) Controversy: Wither a Need for Single Currency by 2021?

The business cycles in the West African Monetary Zone (WAMZ) as well as West African Economic and Monetary Union (WAEMU) using real GDP growth within 1980-2019, detrended by Hodrick–Prescott filters were analyzed. The Pearson correlation analysis on the computed z-scores was employed to examine the level of synchronization of business cycles, the level of symmetry in macroeconomic policies and the level of symmetry in trade flows. It was evident that business cycles synchronization was on the whole increasing, but with higher intensity within WAEMU region than within WAMZ region where only Ghana-Guinea, Ghana-Nigeria, Guinea-Gambia as well as Guinea-Nigeria as pairs were significantly synchronized. Symmetry in macroeconomic policies was on the whole minimal within ECOWAS region. The flow of trade however within ECOWAS region was asymmetric between Cote d’Ivoire and other WAEMU countries and between Nigeria and other WAMZ countries, but was symmetric between other ECOWAS countries, indicating that these economies rely more on transaction with other developed economies. The empirical results provided a direction for countries with synchronized business cycles such as Ghana, Guinea, Gambia and Nigeria to consider proceeding in the creation of the second West African monetary union (SWAMU) while also creating an enabling environment for other countries within WAMZ to join in due course. The study recommended among others that any country under WAEMU without strong similarities with other countries as pairs should disengage from WAEMU. On the converse, countries with strong similarities as pairs should unilaterally realign their exchange rate.

Labour Force Participation Rate and it Implications on Food Security, Fertility Rate and Economic Growth in West African Monetary Zone (WAMZ) Countries

The study investigated the impact of labour force participation rate and its implications on food security, fertility rate and economic growth in the West African Monetary Zone (WAMZ). Using data from 6 countries over the period of 1990 tо 2016 and pool autoregressive dіstrіbutеd lаg (PАRDL) bоunds tеstіng рrосеdurе was employed. The result from the study showed that female labour force participation and health expenditure per capita determine food security and male labour force participation, female labour force participation, gross capita formation, health education per capita and enrolment in secondary education are the variables that determine fertility rate, while male labour force participation, female labour force participation, health expenditure per capita and enrolment in secondary education affect GDP per capita. The study recommended that policies should be directed toward increasing female labour force participation which will compliment male labour force participation as well as increase decent and productive work opportunities for female workers which will promote GDP per capita, leading to reduction in fertility rate and promote food security among member countries. Furthermore, family-friendly policies will further encourage females to participate in the labour market. Therefore, more efforts should be made to promote female labour force participation as the entire WAMZ countries will benefit from the growth and welfare improvement that it will generate. WAMZ countries governments need build their capacity through investment in health and education in order to enhance productivity of the labour force which will lead to economic growth, reduction in fertility rate as well as promote food security. This study has contributed empirically and theoretically to the body of knowledge. The scope covered also makes the study uniquely robust and different from previous ones.

How Does Government Spending Affect Labour Force Participation and Unemployment Within the WAMZ Countries?

This study utilizes static and dynamic models in examining the short run and long run impacts of government spending on labour force participation and unemployment within the West African Monetary Zone (WAMZ) over the period 1991-2018. While the static models are estimated using the Pooled Ordinary Least Squares (POLS) technique and the Least Squares Dummy Variables (LSDV) technique, the dynamic models are estimated using the GMM-IV technique. The GMM-IV technique better addresses endogeneity issues relative to the other techniques utilized and also, the parameters obtained from the technique are confirmed to be consistent by the Arellano-Bond test for zero autocorrelation. Accordingly, this technique is given preference in this paper. The results from the technique reveal that government spending increases the labour force participation rate but has an ambiguous impact on unemployment rate. In the long run, the parameter estimates largely remain unchanged in terms of their sign and significance; however, they increase in size. Based on these findings, this paper firstly recommends that policy makers intensify efforts in increasing government spending; as a reduction may impact negatively on the labour force participation rate. Secondly, this paper recommends the formulation and implementation of fiscal policies that are robust enough to reduce the unemployment rate as they increase the labour force participation rate.

Real exchange rate and asymmetric shocks in the West African Monetary Zone (WAMZ)

This paper examines real effective exchange rate (REER) responses to shocks in exchange rate determinants for the West African Monetary Zone (WAMZ) over the period 1980–2015. The analysis is based on a country-by-country VECM, and oil price, supply and demand shocks are identified using long run restrictions in a structural VAR model. We report significant differences in the response of REER to real oil price, productivity (supply) and demand preference shocks across these economies. In addition the relative contribution of these shocks to REER movements in the short and long run appears to be different across economies. Our findings suggest that the WAMZ countries are structurally different, and asymmetric shocks with inadequate adjustment mechanisms imply that a monetary union would be costly.

Exchange Rate, Uncertainty and Foreign Direct Investment Inflow in West African Monetary Zone

Exchange-rate movements are mostly unpredictable, and this tends to affect both trade and foreign investment flows. This is because foreign investors are unclear on the returns to investment decisions in such cases. Hence, this study examines the effect of exchange rate, its volatility and uncertainty on foreign direct investment (FDI) inflow in West African monetary zone (WAMZ). The study covers the period1980–2014, and the within estimator for the fixed effect model is employed. The study accounts for both exchange rate volatility and uncertainty measures which are anticipated and unanticipated exchange rate innovations measures, respectively. The results show that exchange-rate movements in WAMZ countries are more of unanticipated than anticipated innovations in affecting FDI inflow. Therefore, policies aimed at targeting exchange-rate stability are essential in the WAMZ countries since investors are profit maximizers; hence, investment uncertainties must be kept as low as possible. Also since WAMZ export sectors are primary products based, policies should be geared towards the diversification of the export sectors to combat unanticipated global shocks from commodity prices movement in having an effect on the exchange rate through the foreign exchange reserve channel.

Monetary union in West Africa and business cycles synchronicity: New evidence

AbstractIn the light of the initiative of the West African Monetary Zone (WAMZ) to introduce a common currency by 2020, this paper investigates the intricacies of the business cycles synchronicity among the six countries. Given: (i) the rising importance of trade and cooperation with China; (ii) the consideration of the Euro as a potential anchor currency and a vehicle for trade with the Eurozone; and (iii) the importance of Nigeria as the largest country of the group and the main supplier of oil, we investigate the relative importance of these three major players in having their business cycles linked with the group. In addition, we investigate the underlying determinants of the business cycles synchronicity among the WAMZ countries on a pairwise basis. Results show a clear dominance of China's business cycle synchronicity with the WAMZ over Europe's and Nigeria's. Trade integration emerges as the key underlying factor of the common cycle observed.

Fiscal variables and growth convergence in the ECOWAS

Purpose– The purpose of this paper is to assess the relationship among fiscal variables (net lending, government expenditure and revenue) and economic growth in Sub-Saharan African countries.Design/methodology/approach– Using yearly data for the period between 1980 and 2011 in 15 Economic Communities Of West African States (ECOWAS) countries, the relationship among fiscal variables, economic growth and trade is investigated, through various econometric techniques.Findings– Government expenditure and revenue show pro-cyclical effects in West African Economic and Monetary Union (WAEMU) and ECOWAS countries, while fiscal balance has a pro-cyclical nature for WAEMU during the years 1999-2011. Moreover, a weak long-run relationship between government expenditure and revenue emerge, but only in the case of West African Monetary Zone (WAMZ) countries. Granger causality analysis showed mixed results for WAEMU countries, while for four out of six WAMZ countries (Gambia, Liberia, Nigeria, and Sierra Leone) the “tax-and-spend” hypothesis holds, since government revenue would drive the expenditure. Finally, in the last three decades, cyclical component of economic growth has reduced its fluctuations, both for WAEMU and WAMZ member States.Originality/value– This is the first study on the effects of fiscal policies in the ECOWAS countries.

On the Implications of Trade Openness, Foreign Aid and Democracy for Wagner’s Law in Developing Countries: Panel Data Evidence from West African Monetary Zone (WAMZ)

The impact of trade openness, foreign aid and democracy on government expenditure in developing countries has been emphasized in the literature in recent decades. Nonetheless, most recent studies of Wagner’s law have often neglected the increasing role played by these policy variables. This paper provides an empirical analysis of the long run implications of trade openness, foreign aid and democracy for the fulfillment of Wagner’s law in West African Monetary Zone (WAMZ) countries using panel data techniques for the period 1980–2008. The paper finds the existence of Wagner’s law in WAMZ countries, but only when the role of these policy variables has been catered for. Therefore, if these countries are to meet the fiscal convergence criteria and ensure the sustainability of a single currency area, explicit sets of restraint on the national authorities and innovative and efficient ways of domestic revenue generation necessary to ensure that government revenue keep pace with its expenditure become crucial, because monetary union may not necessarily ensure fiscal discipline.

Monetary Union Membership in West Africa: A Cluster Analysis

Applying hard and soft clustering algorithms to a set of variables suggested by the convergence criteria and the theory of optimal currency areas, this paper examines the suitability of countries in the west African region to form the proposed monetary unions, the West African Monetary Zone (WAMZ) and the Economic Community of West African States (ECOWAS). Our analysis reveals considerable dissimilarities in the economic characteristics of member countries, particularly WAMZ countries. Furthermore, when west and central African countries are considered together, we find significant heterogeneities within the CFA franc zone, and some interesting similarities between the central African and WAMZ countries.

What is Fuzzy About Clustering in West Africa?

Applying techniques of clustering analysis to a set of variables suggested by the convergence criteria and the theory of optimal currency areas, this paper looks for country homogeneities to assess membership in the existing and proposed monetary unions of the broader west African region. Our analysis reveals considerable dissimilarities in the economic characteristics of the countries in west and central Africa. In particular, the West African Monetary Zone (WAMZ) countries do not form a cluster with the West Africa Economic and Monetary Union (WAEMU) countries; and, within the WAMZ, there is a significant lack of homogeneity. Furthermore, when west and central African countries are considered together, we find significant heterogeneities within the CFA franc zone, and some interesting similarities between the Economic and Monetary Community of Central Africa (CEMAC) and WAMZ countries. Overall, our findings raise some questions about the geographical boundaries of several existing and proposed monetary unions.