A Composite Index Of Economic Integration In The West African Monetary Zone (Wamz)

Empirical evidence suggests that regional economic integration plays a crucial role in accelerating growth and development, reducing poverty and economic disparity and boosting productivity and employment, in addition to expanding markets, maximising the efficiency of resource allocation and increasing investment opportunities. Consequently, countries across the globe, including those in Africa, participate in regional integration arrangements to derive the huge benefits associated with it. The Economic Community of West African States (ECOWAS) was, therefore, established in May 1975 to promote cooperation and integration among the countries of the West African sub-region. To fast-track the ECOWAS Monetary Cooperation Programme (EMCP), a two-track approach to monetary integration was adopted by the ECOWAS Authority, leading to the establishment of the West African Monetary Zone (WAMZ) in 2000. The second monetary zone was initially scheduled to kick-off in January 2003, but there have been several postponements due to the slow progress in meeting the macroeconomic convergence criteria by Member States. In spite of the slow progress, evidence has shown that WAMZ countries have made considerable progress towards achieving economic integration in the sub-region. This called for the need to measure and assess Member countries’ performance in the WAMZ integration process using a composite index. Against this background, the study seeks to develop an economic integration index to adequately measure the intensity and pace of regional economic integration in the Zone. The index would help to assess each Member State’s efforts towards the WAMZ integration process. The WAMZ Economic Integration Index (WEII) is composed of five dimensions – trade integration, regional infrastructure, compliance with ECOWAS trade-related protocols, compliance with WAMZ macroeconomic convergence criteria and financial integration. Twenty indicators were identified across the five dimensions to compute the composite index for the period 2015 - 2017. Index weights were obtained and assigned to each of the five dimensions using Principal Component Analysis. Results from the analysis showed that the WAMZ trade integration index increased from 0.063 in 2015 to 0.073 in 2016, but declined to 0.032 in 2017. The result indicated that intra-regional trade was significantly low among the WAMZ economies compared to other regions across the world; thus, Member countries would need to expand their intra-regional trade volumes overtime to improve regional economic integration. The WAMZ regional infrastructure index, however, declined marginally from 0.382 in 2015 to 0.381 in 2016 before rising to 0.386 in 2017, with four Member States recording increases in both 2016 and 2017, while the other two recorded declines in 2016 before increasing in 2017. The WAMZ countries have recorded significant progress in their compliance with ECOWAS trade-related protocols, as the WAMZ compliance index increased to 0.698 and 0.740 in 2016 and 2017, respectively, from 0.649 in 2015. Compliance with the WAMZ macroeconomic convergence criteria, however, has been slow, as the compliance index remained at 0.528 in both 2015 and 2016 before rising to 0.667 in 2017. The financial integration index declined from 0.955 in 2015 to 0.927 in 2016 before increasing to 0.943 in 2017. The WAMZ economic integration index showed increased level of integration among Member States, as the index scores rose to 0.536 and 0.571 in 2016 and 2017, respectively, from 0.529 in 2015, indicating increased commitment to the WAMZ integration agenda. The under-performance by some of the Member States in the WAMZ-index is attributable to the twin shocks of the Ebola Virus Disease (EVD) and the fall in world commodity prices, in addition to the massive landslide in Sierra Leone in 2017. In terms of country performances, whereas Nigeria recorded the highest WAMZ-index depicting the country as the most integrated in the sub-region, the composite indexes of Sierra Leone and Liberia were the lowest with the indexes for Sierra Leone being below the sub-regional averages throughout the three years while that of Liberia was below the sub-regional average in 2017.