Does regional currency integration ameliorate global macroeconomic shocks in sub-Saharan Africa? The case of the 2008-2009 global financial crisis

Abstract

Purpose – The purpose of this paper is to consider whether regional currency integration in sub-Saharan Africa ameliorates global macroeconomic shocks by considering the impact of the 2008-2009 global financial crisis on economic growth. This suggests that Central Africa Franc Zone (CFAZ) eurocurrency union membership amplifies the effects of global business cycles in sub-Saharan Africa. Design/methodology/approach – The authors estimate the parameters of a quantity theory model of economic growth within a Generalized Estimating Equation (GEE) Framework. Findings – Parameter estimates from GEE specifications reveal that the contraction in credit during the financial crisis of 2008-2009 had larger adverse growth effects on sub-Saharan African countries who were members of the CFAZ eurocurrency union. The authors also find that sub-Saharan African countries who were members of the CFAZ eurocurrency union were more likely to experience a contraction in credit. Originality/value – As far as the authors can discern, no existing empirical growth models use a GEE framework to estimate parameters of interest. The GEE parameter estimates are distribution-free, robust with respect to unknown forms of heteroskedasticity, and control for a wide variety of error structures that can induce bias in panel data parameter estimates.

The Comparative African Regional Economics of Globalization in Financial Allocation Efficiency

“…Therefore, the impact of globalization may be more detrimental to 'economic and monetary' regions (UEMOA and CEMAC) than to purely economic regions (COMESA and EAC) 13 . This inference is consistent with documented issues of surplus liquidity in the FCFA zone (Saxegaard, 2006;Fouda, 2009) and recent findings from Price and Elu (2014) which have shown that African countries within the FCFA zone were more likely to experience credit contraction during the recent financial crisis.…”

“…Motelle and Biekpe (2015) have examined whether enhanced financial integration is the source of domestic financial sector instability to confirm the Kose et al (2011) hypothesis within the framework of the Southern African Development Community (SADC). have extended Price and Elu (2014) and Motelle and Biekpe (2015) in the context of pre-and post-crisis effects of financial globalization in domestic financial development to confirm the contemporary relevance of the debate on the rewards of liberalization.…”

“…The Henry (2007) and Kose et al (2011) hypothesis for initial financial development conditions for financial development benefits from financial globalisation has been investigated by Asongu (2014b) and Asongu and De Moor (2015ab) who have established threshold conditions for the rewards of financial globalisation in financial development. In the post-crisis literature, Price and Elu (2014) have concluded that credit contraction during the 2008-2009 financial crises has been associated with more adverse growth externalities in sub-Saharan African (SSA) nations that belong to the CFA (French African Colonies) currency union. Asongu (2013c) has investigated real and monetary policy convergence in the CFA zone in light of the EMU crisis and concluded on a substantial absence of the convergence needed for policy harmonization in common responses to serious disequilibria.…”

Financial Globalisation and Financial Development in Africa: Assessing Marginal, Threshold and Net Effects

“…First, Price and Elu (2014) The present inquiry contributes to extant literature by simultaneously accounting for variations in financial development and financial globalisation in assessing the underlying hypothesis of initial financial development conditions for the reward of financial globalisation.…”

“…Following a revival of the debate on benefits of capital account openness in financial development, some scholars have expressed deep skepticism about claims that recent financial engineering has resulted in substantial positive development externalities (Rodrik & Subramanian, 2009). This sceptical strand has been partially motivated by an evolving strand of post-crisis African development literature that is centred around the highlighted hypothesis, namely: Price and Elu (2014), Asongu (2014), Motelle and Biekpe (2015) and Asongu and De Moor (2015).…”