Financial Integration and Economic Performance: Comparative Evidence from SADC and ECOWAS Regions

Abstract

This paper examined the impact of financial integration on economic growth in Southern African Development Community (SADC) and Economic Community of West African States (ECOWAS) countries over the period 1993–2013. Using the Panel ARDL PMG Model developed by Pesaran and Shin, other control variables (trade openness, inflation, government expenditure, and institutional quality) were captured in the model. It was found that there is a significant and positive impact of financial integration on economic growth in the ECOWAS region in the long run. Whereas, even after controlling for necessary variables, financial integration exacerbates negative and insignificant effects in determining economic growth in the SADC region, both in the short run and long run. The insignificant and negative impact of financial integration on the region’s economic growth was attributed to several possible factors, including the low level of financial development in the SADC region, which is unconnected with the poor level of governance, unstable and fragile financial stability, or low creditworthiness, that are prevalent in developing countries like those in SADC countries. The findings suggest, amongst others, that increasing financial integration could improve the productive capacity of the economy, including more investments and the efficient allocation of capital, thus enhancing economic growth in these regions. This paper sheds new insights on a better evaluation of the past and present theorizing on the subjects of financial integration and economic growth, especially in comparing the separate effects on the economies of the SADC and ECOWAS countries.

Estimation of the public debt threshold effects on economic growth in sub‐Saharan African countries

“…Indeed, given the complexity of these rules, their effectiveness depends on structural and institutional factors specific to each country. As shown by Onah (2022), the existence of these factors (total investment, economic openness, populationgrowth rate, level of financial integration, etc.) largely explains the difference of public debt thresholds results between ECOWAS (49% of GDP) and SADC (45%).…”

“…Our results indicate a threshold of 49% for countries in the ECOWAS zone and 45% for countries in the SADC zone. This difference between the two zones could be due to structural factors, such as economic dynamism (growth rate), the level of investment, and trade openness (Oloyede et al, 2021; Onah,2022). These differences may in some cases attenuate the expected.…”