TRADE FLOWS, MACROECONOMIC POLICY AND BUSINESS CYCLES SYNCHRONISATION IN WEST AFRICA

Abstract

Business cycles for individual countries under Economic Community of West African States (ECOWAS), using GDP within 1980-2015, detrended by Hodrick–Prescott filters was first computed. A covariance analysis on the computed z-scores to examine the level of synchronisation of the regional business cycles, the level of symmetry of regional macroeconomic policies and the level of symmetry of regional trade flows was then employed. It was evident that business cycles synchronisation and symmetry in macroeconomic policies were on the whole increasing among ECOWAS region, but with higher intensity within West African Economic and Monetary Union (WAEMU) than within West African Monetary Zone (WAMZ). The flow of trade however within ECOWAS region was highly asymmetric indicating that these economies rely more on transaction with other developed economies. The empirical results provided clear support for the need for West African countries to look more inward especially by optimizing her macroeconomic policies and intensifying production through domestic investments. This would stimulate the flow of trade within ECOWAS region and further intensify business cycles synchronization. As a result, we advocate for the formation of a monetary union for WAMZ but with the various currencies still in existence at least for the interim and also advocate for the formation of monetary union for ECOWAS region for the latter. This would properly monitor incentives for optimal macroeconomic policies, trade flows and business cycles synchronisation.