Unified Stock Market for the Promotion of Business Activities in West African Monetary Zone (WAMZ)

This thesis provides an assessment of monetary integration in the West African Monetary Zone (WAMZ) focusing upon its feasibility and trade implications, in order to inform policy about the group’s deep integration scheme. The first aspect of the original contribution of the thesis focuses on one of the main issues in the debate of the monetary union in the WAMZ, namely the degree of asymmetry in macroeconomic shocks. The study examines the real effective exchange rate (REER) behaviour among the prospective candidates to assess the degree of potential costs of giving up monetary policy autonomy. The evidence reported from VECM, impulse response and variance decomposition analysis points to heterogeneous economies. Therefore, idiosyncratic shocks imply the need for different policy responses to adjust to macroeconomic shocks. The findings strengthen the case for policy autonomy in the region. The second aspect of original contribution of the thesis evaluates the potential effect of a common currency on trade among WAMZ member countries. Using the existing currency union in ECOWAS, the CFA franc zone, the chapter estimates the effect of a common currency on bilateral trade over the period 1980-2016 using the gravity model. The main conclusion reached is that membership of the CFA franc zone has promoted bilateral trade among members by 60%. The findings support the hypothesis that a common currency increases bilateral trade, which is a helpful guide for a WAMZ monetary union. In summary, the thesis demonstrates that in the long term, a common currency would promote intra-community trade, but at present, a monetary union is not feasible due to asymmetric macroeconomic shocks. Therefore WAMZ deep integration scheme would require members instituting adequate alternative adjustment mechanisms such as fiscal transfer schemes. / Ghana Education Trust Fund (GETFund) for the financial support and Division of Economics (now Accounting, Finance and Economics Group) for the offering of the Graduate Teaching Assistant Studentship

Dans le contexte de la mondialisation, le projet d’émission d’une monnaie unique en Afrique de l’Ouest, initié par la CEDEAO en 1999, offre aux petites économies de la sous-Région de nouvelles opportunités. Le marché unique accroitrait la taille des marchés domestiques, favoriserait les économies d'échelle, simulerait la profitabilité des investissements et l’accroissement du Produit potentiel des économies. La présente Thèse étudie les implications associées à cette évolution monétaire projetée, dans la perspective des pays de la sous-Région qui conduisent actuellement une politique monétaire et de change autonome. Les résultats montrent que les économies de la CEDEAO ne sont pas synchrones, notamment par rapport à leur cycle de croissance. L’analyse des mésalignements établit que la non-Participation à une union monétaire ne protège pas contre les déséquilibres de change. Une participation de la Gambie, de la Guinée ou de la Sierra-Leone à l’UEMOA aurait été préférable, entre 1994 et 1999. Mais cet avantage se réduit ou disparaît à partir de 2000. Le bien-Être mesuré par la croissance du PIB ou par l’IDH n’est pas affecté par la participation à une zone ou à une union monétaire. Toutefois, une telle participation a un effet vigoureux, positif et significatif sur le bien-Être mesuré par la consommation par habitant. Globalement, malgré la faible synchronisation des économies, la participation à l’union monétaire en Afrique de l’Ouest est associée à un niveau de mésalignement équivalent ou plus faible que celui de la non-Participation, sauf pour le Ghana et le Nigéria. Mais une telle participation pourrait accroître la consommation par habitant. Le projet de monnaie unique de la CEDEAO est donc pertinent pour les économies de la ZMAO. / The context of the globalization suggests that the project of a West African common currency launched by the ECOWAS commission in 1999 is a potential source of opportunities for the small economies of the sub-Region. The common market will increase the scale of their small domestic markets; facilitate the realization of the scale economies; enhance the profitability of the investments and improve the potential product of the economies. Thus, this thesis aims to analyse the effect of that monetary evolution planned for countries following an autonomous monetary and exchange policy in the West African sub-Region. The results show that the economies of the sub-Region are not symmetric, especially because of their growth cycles. The equilibrium exchange rate analyse proves that the non-Participation in the common currency does not shield the West African economies against the exchange rate misalignment for them. Especially a participation of Gambia, Guinea or Sierra-Leone in the West African Economic and Monetary Union (WAEMU) between 1994 and 1999 would have generated a lower exchange rate misalignment for them. But that effect decreases or disappears as for 2000. On another hand, the participation in a common currency or in a monetary area in Sub-Saharian Africa does not affect the welfare measured by growth or HDI. But, both the participation in the monetary area or in the common currency improves the welfare, measured by consumption by head, strongly and significantly. Ultimately the ECOWAS economies are not robustly symmetric. Relative to the misalignment of the exchange rate the non-Participation in the WAEMU is not better, except for Ghana and Nigeria. For all ECOWAS economies, the participation in a common currency or in a monetary area is better for their welfare, measured by the consumption by head. The ECOWAS common currency project is subsequently relevant for monetary union non-Participants economies of the sub-Region.