MACROECONOMIC CONVERGENCE AND THE SINGLE CURRENCY PUZZLE IN ECOWAS

  • Eko Omini Eko
  • Eugene Okoi Ifere
  • Messiah Abaka John
  • ( paper pages. 407 - 427 )
The Nigerian Journal of Economic and Social Studies
Vol. 66, No. 3, November 2024
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Abstract

This study evaluated macroeconomic convergence within the Economic Community of West African States (ECOWAS) to assess its readiness for a single currency, addressing gaps in existing literature through advanced econometric methodologies. Drawing on the Optimum Currency Area (OCA) framework and New Keynesian credibility theory, the analysis employed the Phillips and Sul (2007, 2009) log-t convergence test and robust club clustering algorithms to examine inflation, debt-to-GDP ratios, and foreign exchange reserves across 14 ECOWAS countries (1996–2023). Results reveal full-sample divergence in inflation, necessitating classification into three clubs: Club 1 (The Gambia, Ghana, Guinea, Nigeria, Sierra Leone), Club 2 (Burkina Faso, Côte d’Ivoire, Niger, Senegal, Togo), and a divergent subgroup (Benin, Cabo Verde, Guinea-Bissau, Mali). Debt-to-GDP ratios and reserves exhibit full-sample convergence. Club merging tests confirm entrenched heterogeneity, with inflationary asymmetries undermining regional cohesion. The findings challenge ECOWAS’s adherence to OCA criteria, highlighting structural disparities and policy misalignment. The study advocates institutional reforms to harmonize fiscal-monetary frameworks, flexible policy regimes accommodating counter-cyclical measures in vulnerable economies, and sub-regional integration prioritizing clustered convergence cohorts (e.g., within WAEMU and WAMZ). These innovations are aimed at mitigating fragmentation risks and advancing the stalled “ECO” currency agenda, offering actionable insights for policymakers to reconcile macroeconomic divergence with regional monetary aspirations.

Citation

Eko Omini Eko, Eugene Okoi Ifere, Messiah Abaka John. 2024. "MACROECONOMIC CONVERGENCE AND THE SINGLE CURRENCY PUZZLE IN ECOWAS" The Nigerian Journal of Economic and Social Studies, 66 (3): 407 - 427.

JEL Classification

E6, E61, E31, E62