MACROECONOMIC SHOCKS, INSTABILITY AND ECONOMIC GROWTH IN SELECTED ECOWAS COUNTRIES

Abstract

 This study investigates macroeconomic shocks, instability, and economic growth in selected ECOWAS countries. Specifically, Benin, Carbo Verde, Côte d’Ivoire, Ghana, Guinea-Bissau, Nigeria, Senegal, Togo, and the Gambia were considered for the study based on data availability and a long history of macroeconomic instability. The study adopts panel structural Vector Auto Regressive (VAR) as a methodology to conscientiously account for the responses of variables of each country to idiosyncratic and common structural shocks. This is achieved by allowing full cross-member heterogeneity of the response dynamics. The data used is a panel that comprises nine ECOWAS countries from 1992 to 2023. The results of the impulse response functions revealed evidence of insignificant shock propagation and transmission among the macroeconomic variables, such as the countries' GDP, inflation, unemployment, and exchange rates. However, the results indicated that macroeconomic instability in the countries is attributable to internal rather than external shocks. This is because the diagonal impulse response functions were more significant than the off-diagonal impulse response functions. The policy implication of these results is that macroeconomic stability is achievable when the ECOWAS countries focus more on controlling inflation and unemployment through effective monetary and fiscal policies. Doing this will not only enhance the attainment of internal balance but also assist them in mitigating the effects of the shocks and foster higher economic growth.