Macroeconomic convergence compliance and economic growth in West Africa

Abstract

Global interest in the creation of an economic and monetary union to support economic growth and development has recently been revived due to the successful establishment of the Euro as the European Union's single currency. The objective of this study was to analyse the effect of macroeconomic convergence compliance on growth by the development of a macroeconomic convergence compliance index for ECOWAS. The study also sought to test the per capita income convergence or divergence in ECOWAS and its sub-zones, WAEMU and WAMZ. Using a panel dataset from 2005 to 2022 on 15 ECOWAS member states, the study examined the conditional convergence hypothesis and the effect of macroeconomic convergence compliance on growth using the Generalised Method of Moments (GMM), a dynamic panel estimation technique. The study established that there was per capita income divergence among the countries in the ECOWAS region and also that compliance of member countries with macroeconomic convergence criteria has a positive and significant effect on economic growth in the ECOWAS and the WAMZ. The findings suggested that foreign direct investment, gross capital formation, and trade openness had positive and significant effects on economic growth. The study recommends that ECOWAS member countries especially the WAMZ countries establish policies that will facilitate convergence to form the monetary union and eventually the ECOWAS current union. The study also recommends that poorer countries in ECOWAS should urgently pursue pragmatic policies to increase education and gross physical capital formation accumulation and subsequently make efficient use of these resources to reduce the per capita income gap in the ECOWAS region.