Financial Development, Currency Union And Growth Dynamics In Sub-Saharan African: A Panel Investigation
- Kevin Odulukwe
- Agbanike T.
- Ebele S. Nwokoye
The objectives of this paper are to investigate the effect of financial development and currency union on the growth dynamics of Sub-Saharan Africa and to determine if the currency union is necessary for the financial development to be more beneficial to growth. A modified model of Alfaro et al, (2004) was adopted. The sample was drawn from 12 West African countries - five from West African Monetary zone and seven from West African Economic and Monetary Union countries. Fixed effects model was employed to estimate the parameters for West African Monetary Zone and the pooled data of WAMZ and WAEMU, while the random effect model was used to estimate the parameters for WAEMU. The results did indicate that separate currency unions in West Africa impact negatively on growth. Forming a single but strong currency union will yield more income benefits to West African countries. For the region to derive more benefits from financial system, especially banking system, a single strong currency union is required. More trade among the member states should be strongly encouraged. Africa union should consider, as a matter of urgent, a single currency as it will promote trade and eliminate exchange rate distortions on trade and thus growth, as been experienced in Europe.