Abstract
In this paper, we seek to answer three main questions: first, what are the long- and short-run determinants of current account balances in West Africa; second, is there a sustainable path for the current account position that is consistent with regional integration; and if yes, what has been the process of adjustment towards such a path. We address these questions by first identifying the long-term determinants of the current account, and then using the results to calculate the equilibrium sustainable targets for the current account in the region. After accounting for short-run disequilibrium adjustment processes, we show how far apart each country is from the regionally sustainable path. The key findings are as follows: the determinants of current account dynamics differ depending on the time horizon; the real exchange rate, fiscal policy, trade openness, investment, and income levels are the key determinants in the short run; there is considerable variation in the deviation of each countries’ current account position from the regionally sustainable equilibrium path. Some implications for policy are highlighted.
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Notes
- 1.
- 2.
Recall that the power of a test lies in its ability to reject the null hypothesis when it is not true; and the size of a test is the probability of rejecting the null hypothesis when it is actually true.
- 3.
The result for the inflation variable also indicates that it is stationary in levels, however, we do not report the result in the table for lack of space, the results are available upon request.
- 4.
The results for the group mean tests are suppressed, especially because we are only specifically interested in the equilibrium relationships that are consistent with integration for the entire region and not for individual countries.
- 5.
This phenomenon could also be explained by the relatively high and inelastic marginal propensity to import that has been observed in many countries in the region especially for Nigeria.
- 6.
Note that the “half-life” is defined as the number of periods it takes to close half of the disequilibrium. It is computed as ln(0.5)/ ln (1 − γ).
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Chuku, C., Atan, J., Obioesio, F., Onye, K. (2019). Current Account Im(balances) and Adjustments to Targets for Regional Integration in West Africa: One Step Forward, Two Steps Backwards. In: Seck, D. (eds) The External Sector of Africa's Economy. Advances in African Economic, Social and Political Development. Springer, Cham. https://doi.org/10.1007/978-3-319-97913-7_2
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DOI: https://doi.org/10.1007/978-3-319-97913-7_2
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