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Business cycles, bilateral trade and financial integration: Evidence from Economic Community of West African States (ECOWAS)

Stéphane Zouri

International Economics, 2020, vol. 163, issue C, 25-43

Abstract: This paper identifies the determinants of synchronization of business cycles in ECOWAS, which is a key issue from the perspective of creating a single currency in 2020. Indeed, conducting actions in the direction of synchronization of business cycles is important because the asymmetries of cycles observed within a monetary union determine its sustainability. We go further than previous studies in this area, as we (i) take into account financial linkages, (ii) propose new measures to improve the quality of results, and (iii) pay attention to the structure of trade by analyzing inter-regional links. Moreover, to highlight the role of adopting a single currency in ECOWAS, we compare the West African Economic and Monetary Union and the non-monetary zone within the ECOWAS zone. We find that bilateral trade and financial integration are determinants of the synchronization of business cycles in the region, with the regional financial integration channel dominating the international one. Finally, we show that the weakness of intracommunity trade does not constitute a barrier to the monetary union, and that the launch of the single currency is a means to increase business cycles synchronization through bilateral trade.

Keywords: Business cycles; Trade intensity; Financial integration; ECOWAS (search for similar items in EconPapers)
JEL-codes: E32 F15 F36 O55 (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1016/j.inteco.2020.04.001

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Handle: RePEc:eee:inteco:v:163:y:2020:i:c:p:25-43