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Heterogeneity of Saving-Investment Causality in Waemu Zone and Fiscal Coordination Implication

In: Regional Economic Integration in West Africa

Author

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  • Christian Lambert Nguena

    (University of Yaounde II-Soa)

Abstract

Monetary unions are characterized by contemporary institutional arrangements that entrust monetary policy to a supranational entity while fiscal policies are framed by rules imposed on the budget deficit. Limits on public deficits are usually justified by the idea that government deficits reduce national savings, which ultimately reduces domestic investment and economic growth. However, this idea that domestic savings must necessarily increase if investment increases cannot be taken for granted. Moreover, it is possible that within the union, countries reveal different saving-investment causality, which is capable of rendering considerable credibility and effectiveness of budgetary rules of government deficits systematic prohibition as a means to revitalize investment. This study raises the question of domestic savings-investment causality in the WAEMU zone. It has been determined in each country from a methodology based on co integration vector representations analyze leading to error correction. The existence of a causality heterogeneity between savings-investment in the WAEMU zone leads to consider a new model of fiscal coordination incorporating this heterogeneity, including the adoption of a new budget rule more flexible based on a structural balance without public investment.

Suggested Citation

  • Christian Lambert Nguena, 2014. "Heterogeneity of Saving-Investment Causality in Waemu Zone and Fiscal Coordination Implication," Advances in African Economic, Social and Political Development, in: Diery Seck (ed.), Regional Economic Integration in West Africa, edition 127, pages 159-178, Springer.
    • Handle: RePEc:spr:aaechp:978-3-319-01282-7_7
    DOI: 10.1007/978-3-319-01282-7_7
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