The Convergence Criteria of Monetary Integration and Economic Performance of Sub-Saharan African Countries

Abstract

Based on the experience of countries that have adopted the use of a single currency, there is no doubt that monetary integration remains a key strategy for Sub-Saharan African (SSA) countries to transform themselves into a strong united bloc of developed nations and a global force. Therefore, this study examines the impact of the convergence criteria of monetary integration on the economic performance of SSA countries from 1999 to 2021, using Panel Autoregressive Distributed Lag Model (PARDL). About nine SSA countries from the four regions of SSA were randomly selected, and the countries include: Nigeria, South Africa, Angola, Kenya, Lesotho, Ghana, Ethiopia, Democratic Republic of Congo, and Central African Republic. In order to achieve the main objective of this study, the annual panel data were collected from World Bank database on the variables such as Gross Domestic Product growth rate (GDPG), Inflation Rates (INFR), Real Exchange Rates (REXR), and Fiscal Deficit (FDEF). The panel unit root and Johansen Fisher cointegration tests were conducted on all the variables. While the variables exert mixed order of integration, there exists a long-run relationship among the variables. The PARDL results reveal that the inflation rate has an insignificant positive effect on the GDP growth rate in the long run and an insignificant negative effect in the short run. The result further shows that in both the long and short run, the real exchange rate has an insignificant negative impact on the economic performance of SSA countries. The fiscal deficit result shows a significant positive impact on the GDP growth rate in SSA countries both in the long run and short run. The study, therefore, recommends that government should formulate a policy that would strengthen local currencies against foreign currencies, probably by fixing the exchange rates. If this is done, the inflation rate will be tamed through various productions of goods and services at reduced costs.