Group Formation and Growth Enhancing Variables: Evidence from Selected WAMZ Countries.


Douglason G. Omotor MNES

Business Development Unit,

West African Institute for Financial and Economic Management (WAIFEM),

Lagos, Nigeria.

Abstract

The second West African Monetary Zone (WAMZ) is a group of six Countries within the Economic Community of West African States (ECOWAS) region that has planned to implement a monetary cooperation   program among other objectives through a harmonized payments system among other measures, that would enhance effectiveness of monetary policy, promote macroeconomic stability; increase cross border trade that would crystallized into economic expansion and growth. The accomplishment of the monetary union despite the perceived political will and the associated gains particularly in accelerating the economic growth process of member states has been a daunting task. Some other reasons often adduced to this are the economic disparities and poor linkages of the WAMZ economies, perceived fear of domination of smaller economies by bigger ones; weak institutions despite similar economic structure, loss of monetary policy sovereignty etc.

The seminal work of Mankiw, Rower and Weil (1992) is one cross-country studies on economic growth whose results have aroused much interest and debate since  1990s (Durlauf and Quah 1999; Dinopoulos and Thompson, 1999; Durlauf, Kourtellos and Minkin, 2001; Narayan, Narayan and Mishra, 2010; Jalles, 2012; Jongwanich and Kohpaiboon, 2013; Cooray, Paradiso and Truglia, 2013; etc).  Mankiw et al. (1992) study is an empirical evaluation of an extended version of the Solow-Swan growth model that incorporated human capital. The results of the applied model among others are adjudged to have yielded plausible estimates of an a elasticity of output with respect to capital. Plethora of studies that applied the Mankiw, et al. framework underscores the importance of additional heterogonous factors that could enhance growth of countries even when such countries belong to the same region and homogeneous by some macro stylized facts.

In the literature on accelerating economic growth and group formation, some studies have opined that heterogeneity be considered when determining whether countries which belong to the same region would suggest the same growth process and homogeneity by some macro stylized facts including similar technology. Most of the leading studies safe for Cooray, et al. (2013) applied cross-country data in this determination. It is our view that following Corray, et al. (2013) approach, country-specific time series estimation technique will precisely be more suitable in detecting growth enhancing variables in different countries, even when they belong to the same geographical area. This view is underpinned by Luintel, Khan, Arestis and Theodoridis (2008) stance that panel regression undermines the importance of cross country differences; a constraint often associated with data pooling in the absence of balanced growth.

This study sets out to empirically determine whether other than the apparent homogeneity argument of countries belonging to the same geographical area which enhances group formation, there could be other sources of heterogeneity such as different political, legal, economic, national policies and interactive forces that drive growth in the WAMZ countries.  The study shall further apply appropriate statistical and econometric tests to deal with parameter heterogeneity estimates that will yield unbiased and consistent conclusions. A scan at the available data suggests that the WAMZ countries may be dissimilar as a result of institutional variations. The implication of this is that in studying and recommending countries for the monetary union and group formation, countries which share common stylized facts be studied and recommended together in a sequence of monetary union formation! As such, if policy needs are implemented along country specific characteristics, it could serve as a shorter pathway to economic integration of the zone.    
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