INFLATION CONVERGENCE AND THE READINESS FOR MONETARY UNION IN ECOWAS: PANEL EVIDENCE (2000–2023)
Keywords:
inflation convergence, monetary union, ECOWAS, ECO, panel unit root, beta/sigma convergence, club convergence, Phillips-SulAbstract
The Economic Community of West African States (ECOWAS) has postponed its single currency, the Eco, four times, with a fifth target of July 2027 now approaching. Officials are debating a phased launch rather than requiring simultaneous readiness. This paper tests whether the region's 2000–2023 inflation dynamics support such a launch. Using an annual panel of fifteen ECOWAS states, we apply first and second generation panel unit root tests, sigma- and beta-convergence estimation, dynamic GMM, and Phillips-Sul club convergence testing. Inflation is stationary across the full panel and subgroups under the CIPS test, though a first-generation test discrepancy for WAMZ is flagged for future work. Beta-convergence is robust, with a half-life under one year, but sigma-convergence—significant through 2021—is fully reversed by the 2022–2023 shock. Central bank financing of deficits is the most consistent driver of divergence. Phillips-Sul clustering reveals that convergence clubs do not track the WAEMU/WAMZ boundary: Ghana clusters with WAEMU, while Nigeria and The Gambia form a divergent pairing. These findings indicate genuine but incomplete and uneven convergence, with direct implications for sequencing a phased monetary union.
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