The emergence of regional business cycle in Africa—a reality or myth? A Bayesian dynamic factor model analysis

Oyeyinka S. Omoshoro‐Jones and Lumengo Bonga‐Bonga
Authors registered in the RePEc Author Service: Lumengo Bonga-Bonga and Oyeyinka S. Omoshoro-Jones

The World Economy, 2020, vol. 43, issue 1, 239-273

Abstract: This paper examines the evolution and the underlying forces of the business cycle co‐movements among seven African (A‐7) countries over the period 1970–2016. These countries accounted for over 60% of regional GDP, have abundant natural resources, access to the global capital market and widely viewed as potential drivers of regional (or “African”) business cycle. We model the national business cycle using real output, consumption and investment. We employ a dynamic factor model to decompose fluctuations in these macro‐variables into a regional, country‐specific and idiosyncratic components using Bayesian methods. We also analyse the relative importance of some notable drivers of business cycle fluctuations found in the literature. We find that the idiosyncratic component is dominating cyclical fluctuations in the A‐7 countries, while country‐specific and regional factors play a negligible role suggesting the inexistence of a common regional cycle despite deepening intra‐African trade. Among the driving variables, the terms‐of‐trade shocks exert greater influence on the A‐7 business cycle, while exchange rate movements and changes in money supply explain sizeable fluctuations in consumption and investment in most of the A‐7 countries. Shocks associated with changes in relative domestic oil prices, monetary and fiscal policies cause large output fluctuations.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://doi.org/10.1111/twec.12888

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:worlde:v:43:y:2020:i:1:p:239-273

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0378-5920

Access Statistics for this article

The World Economy is currently edited by David Greenaway

More articles in The World Economy from Wiley Blackwell
Bibliographic data for series maintained by Wiley Content Delivery ().