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

Abstract

In 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.

Monetary integration in West Africa: Are business cycles converging?

“…The results point to the need for risk-sharing mechanisms that will help asynchronous countries reduce the cost of abandoning their monetary policy tools. The business cycle synchronization analysis conducted by Simons and Jean Louis (2018) focused on the WAMZ area, taking into account China's growing importance in Africa and the long-standing links of countries in the area with European economies. The objective was to determine the relevance of considering China's influence in the choice of an anchor for the proposed common currency.…”

Fiscal Convergence in Africa: What Role for Regional Economic Communities?

“…The level of business cycle synchronicity is relatively low in existing or contemplated African monetary zones (Tapsoba 2009, Simons andJean Louis 2018). However, this finding is not necessarily permanent because synchronization may be endogenous to the integration process.…”