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立 政 治 大 學
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Chapter 1: Introduction
I. Research motives
The Economic Community of West African States has long been seeking economic and monetary integration. As a matter of fact, the west African countries have agreed on adopting a common currency a long time ago as the original launch date of the ECOWAS common currency was 1994. The various postponements of this project not only illustrate the unreadiness of the West African countries but also essentially point out their economic difficulties. This study aims to contribute to the economic development of West Africa by proposing policy recommendations that can help solve the prevailing economic and monetary integration problems within that region.
Many studies have examined the feasibility of the ECOWAS single currency project based on the Optimal Currency Areas theory and using the Vector Auto-Regressive model. This study tries the unconventional way by using the Eurozone experience as a benchmark to study the ECOWAS single currency project. The Eurozone is one of the biggest monetary unions in the world. Its, currency the Euro, is one of the biggest international currency in the world as well. More importantly, the recent developments such as the debt crisis, Brexit, and Frexit have revived the debate on monetary unions and given much public attention to this region. Thus, the least we can get by studying the Eurozone is everything we need to know about monetary unions. By doing so, we intend to bring to light patterns that previous studies have not identified, thus enabling the provision of useful policy recommendations.
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國立 政 治 大 學
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N a tio na
l C h engchi U ni ve rs it y
Besides the aforementioned, the choice of this research topic is the result of the researcher’s passion for the study of macroeconomics and international finance and her desire to pursue further studies in this area. This study represents for her a step forward in the direction of her long-term career goal.
I. Introduction
The Economic Community of West African States (ECOWAS) seeks to promote economic integration in all areas thereby ensuring a collective self-sufficiency of its member states1. To achieve this goal, one of ECOWAS the key strategies is the implementation of a single currency by 2020. In 40 years of existence, the regional economic community has made a lot of progress; however, the conditions for establishing a regional single currency seem to not be met yet, as witnessed by various studies on the topic. Up to the present, the Eurozone is one of the biggest monetary unions in the world. Today, the Euro stands as the world’s second most important international currency2. Along its path of existence, the Euro has encountered moments of prosperities as well as periods of difficulties (Bamituni, 2013).
As such, the Euro experience can serve as a reference for the ECOWAS prospective single currency. The purpose of this study is to contribute to the debate of single currency in West Africa and provide policy recommendations to the ECOWAS by using the Eurozone experience as a benchmark.
1 (ECOWAS, 2017) About the ECOWAS: Basic information. Retrieved from http://www.ecowas.int/
2 (EU, 2017). About the EU: EU monetary cooperation. Retrieved from https://europa.eu/european-union/index_en
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國立 政 治 大 學
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N a tio na
l C h engchi U ni ve rs it y
II. Research question
The ECOWAS was established in May 1975 through the treaty of Lagos and is composed of fifteen countries gathered in two groups of regional economic community: the West African Economic and Monetary Union (WAEMU) and the West African Monetary Zone (WAMZ)3. The WAEMU countries are Benin, Burkina Faso, Cote d’Ivoire, Guinea Bissau, Mali, Niger, Togo, and Senegal; the WAMZ countries are Ghana, Gambia, Guinea, Liberia, Nigeria, and Sierra Leone. Cape Verde is the only country in the ECOWAS that is neither member of the WAEMU nor of the WAMZ. The ECOWAS countries are faced with economic and social challenges and, up to date, remain ones of the world’s least developed countries. However, they are fast growing4, and have many potentialities such as endowment in natural resources, young population, and industries in await to be exploited.
The economic integration sought by the ECOWAS can unleash these potentialities thereby ensuring sustainable economic development. Nevertheless, the formation of a monetary union is a tremendous shift. If well implemented, its outcomes are undoubtedly favorable.
For instance, a monetary union can eliminate exchange rate costs; develop trade, increase foreign direct investment, enhance political integration, etc. (Mongelli, 2008). However, a single currency can have deleterious consequences if the member states involved do not fulfilled the condition for its establishment (Gnimassoun, 2013).
Called the European Union (EU) since 1993, the EU has been created in 1958 and was initially named the European Economic Community (EEC)5. The name change reflects the
3 (ECOWAS, 2017). About the ECOWAS: Basic information. Retrieved from http://www.ecowas.int/
4 According to the ECOWAS, in 2013 the West Africans countries have registered on average an economic growth rate of 6.3%
5 (EU, 2017). About the EU: EU in brief. Retrieved from https://europa.eu/european-union/index_en
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國立 政 治 大 學
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shift from economic union to political union6. The Euro was launched in January 1999.
Today, 19 countries out of the 28 that make up the European Union have adopted the Euro.
From the sovereign debt crisis to “Brexit”, the European Union story is rich in lessons that ECOWAS in its pursuit of monetary integration can learn from not only in the formulation and conduct of their policies but also in setting up discipline and measures to overcome potential future crisis.
In this study, we intend to establish a concrete analysis of ECOWAS’ situation, to study the Eurozone’s recent monetary problems, and its main monetary treaties. As the result of these analyses, we aim to provide policy recommendations for the ECOWAS single currency project. As such, our main question is the following: What lessons do we learn from the Eurozone experience for the prospective West African monetary union? The following specific questions will be addressed in this study:
What have been the main mistakes in the design of the Eurozone common currency?
Does the ECOWAS presents features that might lead to similar mistakes?
What were the main causes of the Eurozone debt crisis? Does the ECOWAS present peculiarities that might lead to unsustainable public debt and an eventual debt and currency crisis?
Does the ECOWAS fulfill the conditions to have single currency? What do the empirical studies tell us about the sustainability of the prospective West African single currency?
6 Ibid
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國立 政 治 大 學
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N a tio na
l C h engchi U ni ve rs it y
In the next chapter, we will present the theoretical and empirical literature review combined with a detailed explanation of the methodology we have used in this study. Chapter 3 is dedicated to the study of the Eurozone. This study is divided in two parts: a case study of the Eurozone’s main issues and a quantitative empirical study of the Eurozone debt crisis.
In chapter 4, we study the ECOWAS in reference to our findings about the Eurozone. We will compare and contrast the Eurozone experience and the ECOWAS situation in chapter 5 in other to provide an apprehension of the big picture to the reader. Additionally, in the same chapter, we provide the general conclusion and policy recommendations to the ECOWAS.
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國立 政 治 大 學