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How financially integrated are trading blocs in Africa?

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  • Bonga-Bonga, Lumengo
  • Mabe, Queen Magadi

Abstract

This paper assesses the degree of financial integration between three African trading blocs, namely, the Common Market of Eastern and Southern Africa (COMESA), the East African Community (EAC) and the Southern African Development Community (SADC). The paper suggests a measure of financial integration based on the combination of the dynamic conditional correlation-general autoregressive conditional heteroscedastic (DCC-GARCH) and factor models. The results of the empirical analysis show that not all countries within each of the three trading blocs are integrated to their regional factors. Moreover, the finding of the paper shows a ‘decoupling’ between some of the trading blocs. Robustness test is conducted to support the results of the empirical analysis and shows that the proposed method provides a better way to measure integration than other methods, such as the multi-factor R-square method proposed by Pukthuanthong and Roll (2009).

Suggested Citation

  • Bonga-Bonga, Lumengo & Mabe, Queen Magadi, 2016. "How financially integrated are trading blocs in Africa?," MPRA Paper 75716, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:75716
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    Cited by:

    1. David Oluseun Olayungbo & Badar Alam Iqbal, 2021. "An empirical analysis of African trade blocs effects on the global economy: new evidence from the gravity model," Future Business Journal, Springer, vol. 7(1), pages 1-11, December.
    2. Lumengo Bonga-Bonga & Tebogo Maake, 2021. "The Relationship between Carry Trade and Asset Markets in South Africa," JRFM, MDPI, vol. 14(7), pages 1-13, July.
    3. Oyenyinka Sunday Omoshoro‐Jones & Lumengo Bonga‐Bonga, 2022. "Intra‐regional spillovers from Nigeria and South Africa to the rest of Africa: New evidence from a FAVAR model," The World Economy, Wiley Blackwell, vol. 45(1), pages 251-275, January.
    4. Shi, Yangyan & Feng, Yu & Zhang, Qi & Shuai, Jing & Niu, Jiangxin, 2023. "Does China's new energy vehicles supply chain stock market have risk spillovers? Evidence from raw material price effect on lithium batteries," Energy, Elsevier, vol. 262(PA).

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    More about this item

    Keywords

    Financial integration; African trading blocs; factor model; DCC GARCH;
    All these keywords.

    JEL classification:

    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis
    • C58 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Financial Econometrics
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration

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