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Working Paper 287 - Current Account Adjustments and Integration in West Africa
In this paper, we seek to understand three main issues: first, what are the long- and short-run determinants of current account balances in West Africa; second, is there a sustainable path for the current account position that is consistent with regional integration; and if yes, what has been the process of adjustment towards such a path. We address these questions by first identifying the longterm determinants of the current account, and then using the results to calculate the equilibrium sustainable targets for the current account in the region. After accounting for short-run disequilibrium adjustment processes, we show how far apart each ECOWAS country is from the regionally sustainable path. The key findings are as follows: (i) the determinants of current account dynamics differ depending on the time horizon of analysis; (ii) the real exchange rate, fiscal policy, trade openness, investment, and income levels are the key determinants in the short run; (iii) there is considerable variation by country in the deviation of each countries' current account position from the regionally sustainable equilibrium path. Some implications for policy are highlighted.