New evidence on international risk-sharing in the Economic Community of West African States (ECOWAS)

This paper explores income and consumption smoothing patterns among ECOWAS countries during the period 1980–2016. It is relevant given the willingness of heads of state in the region to create a single currency. Indeed, in a monetary union, asymmetric shocks are not problematic if risk-sharing mechanisms, other than the exchange rate, are in place to allow countries to adjust to specific shocks. The paper provides more information on the accounting decomposition of national aggregates allowing a better understanding of risk-sharing channels. Unlike previous studies in this area, we show that official development assistance and gross saving smooth out asymmetric shocks between ECOWAS countries. Besides, net taxes on products and production, respectively, social contributions and social benefits limit net primary incomes’ effectiveness, respectively, net secondary incomes to smooth asymmetric shocks. Moreover, we show that even if the degree of risk-sharing increases over time, it has remained limited. Also, market- based risk-sharing mechanisms are ineffective when they are most needed. That’s why ECOWAS countries need a supranational fiscal that could provide an additional tool to smooth asymmetric shocks in the region.