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Current Account Im(balances) and Adjustments to Targets for Regional Integration in West Africa: One Step Forward, Two Steps Backwards

In: The External Sector of Africa's Economy

Author

Listed:
  • Chuku Chuku

    (University of Uyo
    African Development Bank)

  • Johnson Atan

    (University of Uyo)

  • Felix Obioesio

    (University of Uyo)

  • Kenneth Onye

    (University of Uyo)

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.

Suggested Citation

  • Chuku Chuku & Johnson Atan & Felix Obioesio & Kenneth Onye, 2019. "Current Account Im(balances) and Adjustments to Targets for Regional Integration in West Africa: One Step Forward, Two Steps Backwards," Advances in African Economic, Social and Political Development, in: Diery Seck (ed.), The External Sector of Africa's Economy, pages 21-49, Springer.
    • Handle: RePEc:spr:aaechp:978-3-319-97913-7_2
    DOI: 10.1007/978-3-319-97913-7_2
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    More about this item

    Keywords

    Current account dynamics; Panel cointegration; Regional integration; West Africa;
    All these keywords.

    JEL classification:

    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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