Community-based economic romance and integration: assessing the feasibility of a currency union in South Asia

Jean-François Verdié, Charbel Salloum, Hajer Jarrar and Léo-Paul Dana
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Jean-François Verdié: TBS - Toulouse Business School
Charbel Salloum: Métis Lab EM Normandie - EM Normandie - École de Management de Normandie = EM Normandie Business School
Hajer Jarrar: Excelia Group | La Rochelle Business School
Léo-Paul Dana: Dalhousie University [Halifax], School of Business and Management [Lappeenranta] - LUT - Lappeenranta–Lahti University of Technology [Finlande]

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Abstract: Purpose This purpose of this study aims to critically evaluate the feasibility of establishing a single currency area within the South Asian Association for Regional Cooperation (SAARC) by examining the economic integration of its member states. The analysis focuses on the extent to which the region meets the criteria of the optimum currency area (OCA) theory, particularly in terms of business cycle synchronization, labor mobility and capital flows. Design/methodology/approach Using a vector autoregression (VAR) model within the aggregate demand-aggregate supply framework, this research investigates the symmetry of supply and demand shocks across SAARC economies. The study analyzes the synchronization of business cycles and the mobility of labor and capital to determine the readiness of SAARC for a unified currency. Findings The results indicate significant asymmetries in business cycles among SAARC countries, with substantial disparities in economic responses to shocks. These findings suggest that the region lacks the necessary economic synchronization required for a successful single currency area. Limited labor and capital mobility further complicate the potential for economic integration within SAARC. Research limitations/implications The study is constrained by data inconsistencies and the limited range of economic indicators available for SAARC countries. Future research should expand the analysis to include a broader set of socioeconomic factors and more comprehensive data sets to better assess the region's potential for monetary integration. Practical implications The study highlights the challenges of forming a currency union in South Asia due to economic disparities and limited mobility. However, gradual steps toward deeper regional integration, improved financial infrastructure and enhanced cross-border collaboration could foster long-term economic stability, growth and social cohesion in the SAARC region. Social implications The research highlights the potential social benefits of enhanced economic integration, such as increased community resilience and social cohesion, while also warning of the risks associated with premature monetary union in a region with significant economic disparities. Originality/value This study provides a detailed analysis linking the theoretical framework of the OCA to the practical realities of economic integration in South Asia. By focusing on the specific economic conditions of SAARC member states, the research offers valuable insights for policymakers considering regional monetary integration.

Keywords: Community-based enterprises; Economic integration; Regional stability; Cross-border collaboration (search for similar items in EconPapers)
Date: 2024-10-29
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Published in Journal of Enterprising Communities: People and Places in the Global Economy, 2024, 18 (6), pp.1415-1430. ⟨10.1108/JEC-06-2024-0108⟩

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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04982127

DOI: 10.1108/JEC-06-2024-0108

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