Viability of a Stable West African Monetary Union

Abdullahi Zakari Yahya () and Louis Sevitenyi Nkwatoh ()
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Abdullahi Zakari Yahya: Usmanu Danfodiyo University, Nigeria
Louis Sevitenyi Nkwatoh: Yobe State University, Nigeria

Empirical Economic Review, 2020, vol. 3, issue 1, 1-18

Abstract: There is apparently non-sychronization of business cycles in the Economic Community of West African States (ECOWAS). This may likely threaten the effectiveness of the monetary union. This study investigated the viability of a stable West African monetary union in the ECOWAS region. The study used the Ghosh-Wolf output loss function after de-trending the annual growth rates of real GDP from 1975 to 2015, using Baxter-King filter approach. The results indicate that smaller economies in the region (Cape Verde, Gambia, Sierra Leone and Mali) will compromise the stability of the union because their cost of pursuing a common stabilization policy will be very high, while larger economies (Nigeria and Ghana) will incur relatively low cost compared to the other groups. Also, the output losses of WAEMU economies fall within a particular range and are relatively lower compared to that of smaller economies in the region probably because they pursue a common stabilization policy. The implication of these findings is that the stability of the envisaged West African monetary union is likely to be compromised since smaller economies in the region will be worse-off than larger economies. Thus, in order not to compromise the stability, smaller economies should not be admitted at the initial stage of the union until they satisfy all the criteria.

Keywords: ECOWAS; Ghosh-Wolf output loss function; Monetary Union; Optimal Currency Area (search for similar items in EconPapers)
JEL-codes: C12 C32 E52 F33 F36 (search for similar items in EconPapers)
Date: 2020
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