Globalization and Macroeconomic Convergence Criteria in the
West African Monetary Zone
Festus O. Egwaikhide1 and Eric Kehinde Ogunleye2
Abstract
The West African Monetary Zone was proposed as the second monetary union in the sub-region with the aim of
harnessing the propagated benefits of monetary union. To quicken the pace of integration, some macroeconomic
convergence criteria were agreed upon by the prospective member countries. While the efforts of these countries at
meeting the criteria are commendable, globalization, a relatively new phenomenon could imbue or undermine these
efforts, if not well understood and managed. Employing the OLS estimation techniques, this paper assesses the effects
of globalization on selected macroeconomic convergence criteria with a view to eliciting our understanding in this
respect. Evidently, globalization affects all the convergence criteria, though in varying degrees that is conditioned by
size and level of integration. Specifically, prominent effects were established for exchange rate depreciation and
inflation rate. Therefore, both country-specific and zone-wide policies targeted at harnessing the real and potential
benefits of globalization and dousing its deleterious effects are imperative.
JEL Classification: F15, F33, F42 Key words: Globalization, Macroeconomic convergence, WAMZ
“The unfolding mega-trends of the world system have transformed African cooperation from a regional
necessity into a continental imperative – the urgent strategic basis for the corporate survival of the African economy” – Onimode (1992: 152)
Regional economic integration has been widely acclaimed as an important means to
improve and maximize economic outcomes for member countries globally, especially in
sub-Saharan African (SSA) countries for several reasons. One, several SSA economies
are very small and fragmented. Thus, integration will help increase market size and
opportunities for member countries. Two, deeper financial integration achieved through
economic and monetary integration would lead to greater financial stability. Three, there
are potential trade gains for member states through trade creation. Four, the enlarged
market leads to improved foreign direct investment flows from both within and outside
1 Professor and Head, Department of Economics, University of Ibadan, Ibadan, Nigeria. Email: [email protected]. 2 Research Fellow, African Center for Economic Transformation, Accra, Ghana. Email: [email protected]. The views expressed here are entirely personal to the author and do not necessarily represent those of the African Center for Economic Transformation, its President, management and funders.
Vol. 10, No.1 Journal of Monetary and Economic Integration
90
the region. Five, the larger market achieved at the back of regional integration holds the
potential for increased returns to firms as they exploit economies of scale more fully.
Aimed at harnessing these perceived dividends of regional integration as a move toward
rapid economic growth, development and transformation, the Economic Community of
West African States (ECOWAS) was established in 1975. In a move to consolidate the
gains from this regionalization and quicken the pace of integration, the Francophone
countries established a monetary union and strengthened the union with a
macroeconomic convergence and harmonization moves in 1994. Six years later, the
Anglophone countries followed suit with the formation of the second monetary zone
involving the non-CFA countries, namely, the West African Monetary Zone (WAMZ).
The WAMZ was established on 15th December 2000 with the five-member countries3
signing the Articles of Agreement and subsequent signing the Accra Declaration on April
20th 2002. The argument was that the formation of these two monetary zones within the
West Africa will make for subsequent easier merger of both currency unions into a single
monetary zone.
The purpose of the WAMZ is to guarantee the establishment of a single monetary union
characterized by a common central bank and a single currency to replace the existing
national currencies in the member countries. However, the creation of a monetary union
has raised several concerns, prominent among which are economic disruptions and
shocks that affect potential member countries unequally. These include unequal growth
patterns, unequal monetary and fiscal expansion leading to inflationary pressures, net
lending versus net borrowing and resource rich versus resource poor. To manage these
perceived challenges to economic integration and monetary union, convergence in some
critical macroeconomic variables in member states have been advocated. Macroeconomic
converge involves the setting of lower and/or upper limits or target range for selected
macroeconomic variables with the aim of guiding important aspects of current and
future policies among potential member countries. Once adopted, such targets become
the guiding philosophy for macroeconomic management policies. Thus, one of the bases
for judging the eligibility of countries for admission into a regional economic bloc is
ability to meet the set criteria.
To this end, two broad groups of macroeconomic convergence criteria have been agreed
upon in the WAMZ, namely, primary and secondary criteria. While the primary criteria
involve inflation, budget deficits, central bank financing of the deficits and gross foreign
3 The Gambia, Ghana, Guinea, Nigeria and Sierra Leone
F. O. Egwaikhide and K. Ogunleye
91
reserves, the secondary criteria entail tax revenues, wage bill, public investments from
domestic receipts and exchange rate. Since these criteria were adopted in 2000, the Zone
member countries have been making concerted efforts to meet them.
However, increasing wave of globalization4 seems to have ambiguous effects on the pace
of convergence on these variables in member countries. It has become unclear whether
globalization improves the pace of regional economic integration or reduces it.
Globalization increases contact between countries in all respects, especially on economic
issues. The issue, therefore, is whether globalization promotes regionalism or induces
shocks and contagion such as the recent global financial and economic crisis that
disrupted macroeconomic variables, thus worsening the speed of convergence in a
monetary union. Hence, globalization will either improve or worsen the pace of regional
integration in the WAMZ, depending on the effects it exerts on the macroeconomic
convergence variables. For instance, the proposed take-off date for the monetary union
has been changed a couple of times, first January 2003, then July 2005, later December
2009 and currently 2015. To a great extent, inability to meet the convergence criteria, an
important precondition for monetary union for member states is a strong factor behind
these deferrals.
This article examines empirically, the effects of globalization on regional integration in
the WAMZ by assessing the influence of globalization on macroeconomic convergence
criteria in member countries. Employing OLS estimation technique on the individual
countries across selected macroeconomic convergence criteria, it is evident that effects of
globalization on WAMZ countries depends, to a large extent, on the size, level of
development, level of integration and macroeconomic policy environment. On the one
hand, foreign capital inflow, especially in the net oil and mineral exporting and high aid-
and remittance-dependent economies, is a major determinant of exchange rate changes.
The large capital inflows have deleterious effects on exchange rate appreciation, thus
provoking Dutch disease in some of these economies. Foreign reserves accumulation
and fiscal deficit financing are also found to be strongly driven by resource availability.
Relatively bigger and better integrated economies such as Nigeria and Ghana are found
to experience stronger effects of globalization on macroeconomic convergence variables
compared to smaller and less globally integrated economies. Thus, sound economic,
4 In the literature, globalization has been defined in several ways, depending on the context. For the purpose of this
paper, globalization is viewed as a phenomenon that denotes the reduction and subsequent removal of cross-border
barriers for the purpose of facilitating the flow of capital, goods, labor and services.
Vol. 10, No.1 Journal of Monetary and Economic Integration
92
fiscal, monetary institutional and risk management policies are important for the Zone to
harness the benefits of globalization while at the same time dousing its real and potential
deleterious effects.
The rest of the article is structured into five sections. Following this introduction are
trends in macroeconomic variables in the WAMZ countries. For lack of space, attention
will be focused on the primary criteria while a brief mention will be made of the
secondary convergence criteria. Section three focuses on the discussion of the literature
that demonstrates the real and potential relationship between globalization and
macroeconomic variables. Data and methodological issues are the focal points of section
four while section five provides a discussion of the empirical results. Section five makes
some policy suggestions and section six concludes.
MACROECONOMIC DEVELOPMENTS IN THE WAMZ
Economic growth in the WAMZ has been exceedingly strong in recent times with an
annual regional average of over 6% between 2001 and 2008. The highest regional real
GDP growth of 9% was recorded in 2003. In spite of the recent global financial and
economic crisis, regional growth performance remained strong at almost 7%, though
with a slight drop to around 6% in 2008. Looking at the country-specific scorecard, it is
evident that all the member countries performed excellently well, recording an average
annual real GDP growth of more than 5% between 2000 and 2008, except Guinea that
recorded 3% during this period (see Table 1).
Guinea‘s poor performance is explained by multiple crises, namely, oil crisis in 2007 and
2008, food crisis in 2008, the global financial crisis in 2009 and socio-political crisis
caused by the massacre of protesters in September 2009. Prior to these developments,
the country was embroiled in political crisis that continue to weaken public governance,
institutions, reform and macroeconomic policies and put the country in the bottom rung
globally on institutional governance. In addition, the country has been consistently
ranked by the Corruption Perception Index (CPI) in the bottom five for over ten years.
The 2002 failure in the reforms and liberalization process that began in 1985 has resulted
in the weak economic performance of the country since 2003. On the other hand, Sierra
Leone achieved the strongest economic growth among the WAMZ countries during the
period under review, averaging over 11%. This phenomenal growth, especially between
2001 and 2003, is expected as this is typical of post-crisis economies. It is interesting to
note that the country has consolidated on its post-crisis performance by improving the
buoyancy of its important sectors that include agriculture production, services and
exports. Macroeconomic management has also been extremely prudent in the country,
proving as the necessary lever for managing shocks and keeping the economy on course.
F. O. Egwaikhide and K. Ogunleye
93
Strikingly evident is the remarkable variation in economic growth of WAMZ member
countries. For instance, average real GDP growth between 2000 and 2008 ranged
between 11% in Sierra Leone and less than 3% in Guinea. This poses a great challenge in
terms of the size and performance of these potential monetary union member states. In
addition, shocks affect member states with varying degrees. Better coordination and
managing of such diverse shocks and impact is necessary for successful convergence.
Table 1: Real GDP Growth
Country 2000 2001 2002 2003 2004 2005 2006 2007 2008
Gambia, The
5.4
5.8
1.3
7.4
6.6
6.9
7.7
6.9
6.1
Ghana
3.7
4.2
4.5
5.2
5.6
5.9
6.2
6.3
7.0
Guinea
1.9
3.7
4.2
1.2
2.7
3.3
2.8
1.3
5.0
Nigeria
3.8
4.7
4.6
9.6
6.6
6.5
5.6
6.2
6.4
Sierra Leone
3.8
18.2
18.8
21.6
9.6
7.5
7.3
6.4
6.1
WAMZ
n.a.
4.9
4.8
9.1
6.4
6.4
5.6
6.1
6.4
Source: WAMZ (2003) and WAMZ Database (Accessed 3rd June, 2010)
Primary Criteria
Four primary criteria have been set for the purpose of monitoring the macroeconomic
convergence in the WAMZ member countries. They are single digit inflation rate, fiscal
balance with the exclusion of all grants not exceeding 4% of GDP, Central Bank‘s
financing of fiscal deficits must be less than 10% of total tax revenues in the previous
year, and gross reserves of member countries must be able to finance at least three
months of imports. These criteria are examined in turn with a view to ascertaining the
extent to which the member countries have performed.
Single-Digit Inflation Rate
This is a very lax criterion with substantial liberty as single digit ranges between 1 and 9. As a group, the WAMZ countries are yet to meet this convergence condition as the data for the period between 2000 and 2008 show (see Table 2). A worrying observation on this criterion is that, as a group, the WAMZ never met this convergence condition between 2000 and 2008, except in 2007 (see Table 2). The individual country performance mirrors the Zone‘s performance with highly irregular and unpredictable
Vol. 10, No.1 Journal of Monetary and Economic Integration
94
movements in inflation rate. Throughout the period under review, there was no single year that all member countries met the criterion. The best results were achieved in 2000 – 2001 and 2006 when three out of the five countries met the criterion. The worst year was 2003 when none of the countries could live up to this condition.
Table 2: Consumer Price Inflation Rate, End Period (%)
Country
2000
2001
2002
2003
2004
2005
2006
2007
2008
Gambia, The
0.2
8.1
13.0
17.6
8.0
1.8
0.4
6.0
6.8
Ghana
40.5
21.3
15.2
23.6
11.8
13.9
10.9
12.8
18.1
Guinea
7.2
1.1
6.1
14.8
27.6
29.7
39.1
12.9
13.5
Nigeria
14.5
16.4
12.2
23.8
10.0
11.6
8.6
6.6
15.1
Sierra Leone
-2.8
3.4
-3.1
11.3
14.4
13.1
8.3
12.2
13.2
WAMZ
n.a.
15.2
11.6
22.1
11.5
13.4
11.5
8.2
15.2
Countries Meeting Criterion
3
3
2
0
1
1
3
2
1
Source: WAMZ 2003 and Database (Accessed 3rd June, 2010)
Unbridled and pro-cyclical fiscal and monetary expansions, necessitated by external
shocks, are often the explanatory factors for the high inflationary pressures in WAMZ
member countries. For instance, in 2003, the Gambian monetary authorities increased
broad money supply by over 50% while narrow money supply was increased by 83% in
addition to significant rise in unbudgeted fiscal expenditures resulting from a dip in tax
revenues. Similarly, Guinea and Nigeria increased money supply by approximately 30%
during the same period. In Ghana, inflation rate is driven largely by increases in pump
prices of petroleum products. In 2003, for instance, the pump prices of petroleum
products were raised by 95%. Thereafter, there has been at least three-time increase
between 2009 and 2010.
More important for our consideration, though, is the influence of external shocks and
factors originating from the effects of globalization. One of the main factors is
movements in international prices of goods and services which are easily imported due
F. O. Egwaikhide and K. Ogunleye
95
to globalization that has resulted in trade between the Zone and other countries of the
world. Movements in the global market prices of crude oil have been a major driver of
inflation in all WAMZ countries, perhaps with the exception of Nigeria where there is
huge subsidy by the government aimed at cushioning the domestic effects of such price
movements. In most WAMZ countries, change in international market price of crude oil
is always the major reason put forward by the government for increasing the domestic
prices of petroleum products. In addition, imports of non-oil commodities that are
prone to inflation in the countries of origin is another major source, popularly referred to
as imported inflation.
The Ratio of Fiscal Balance Excluding all Grants to GDP Should be Less Than or
Equal to 4%
At the aggregate level, this criterion was met throughout the period under review.
However, country-specific data reveal a completely different story. Nigeria is the only
country that has consistently met this criterion throughout the period under review. This
is understandably so given the large inflows of oil revenues in the country. There appears
to be a continuous improvement ever since as Guinea joined Nigeria in meeting this
criterion in 2005 and The Gambia added to the list of these two countries since 2006,
leaving Ghana and Sierra Leone behind as poor performers. Fiscal indiscipline and
revenue instability are some of the major determinants of budget deficits in the Zone.
Table 3: Fiscal Balance, Excluding Grants (% GDP)
Country 2000 2001 2002 2003 2004 2005 2006 2007 2008
Gambia, The -1.7
-10.0
-9.1
-7.6
-8.6
-7.4
-2.7
-1.0
-3.3
Ghana
10.1
-13.2
-8.3
-7.5
-8.1
-6.9
-11.3
-15.6
-18.6
Guinea
5.2
-5.2
-8.1
-11.1
-6.5
-0.9
-2.0
-0.5
-1.7
Nigeria
2.5
-3.2
-3.9
-2.0
-1.2
-1.3
-0.6
-0.6
-0.2
Sierra Leone 17.3
-16.5
-11.7
-10.0
-8.6
-9.6
-8.5
-5.0
-7.9
WAMZ
n.a.
-4.2
-4.5
-2.9
-2.0
-1.8
-1.3
-1.3
-1.5
Countries Meeting Criterion
5
1
1
1
1
2
3
3
3
Source: WAMZ 2003 and Database (Accessed 3rd June, 2010)
Vol. 10, No.1 Journal of Monetary and Economic Integration
96
Central Bank’s Finance of Fiscal Deficit as a Percentage of Previous Year’s Tax
Revenue be Less Than 10%
There are several options available to the government in financing fiscal deficits:
borrowing from the public either locally or in foreign markets, drawing down on external
reserves and central bank financing. While these options have their associated costs,
excessive central bank financing of fiscal deficits could induce inflationary trends with
the potential to distort economic activities and ultimately stifle growth. This explains the
need to check the extent to which such options could be used to finance fiscal deficits.
Nigeria is the best performer in this criterion, consistently meeting it between 2000 and
2008, but for 2003. This is followed by Sierra Leone that has missed meeting it only
twice during the period under consideration. The possible explanation for the observed
trend is that countries with large foreign reserves achieved through commodity export
boon tend to do better on this criterion as they can fall on these reserves to finance fiscal
deficits. Moreover, countries with relatively strong financial market and institutions also
tend to perform better because they can exploit this window of borrowing from the
market.
Table 4: Central Bank Financing of Fiscal Deficit (% of Previous Year’s Tax Revenue)
Country
2001
2002
2003
2004
2005
2006
2007
2008
Gambia, The 80.7
22.4
63.1
0.0
0.0
0.0
0.0
0.0
Ghana
0.0
12.1
0.0
27.7
0.0
0.0
0.0
38.7
Guinea
0.0
27.1
16.1
23.1
0.0
81.6
0.0
0.0
Nigeria
0.0
0.0
37.6
0.0
0.0
0.0
0.0
0.0
Sierra Leone
0.0
0.0
24.3
0.0
0.0
17.9
0.0
0.0
WAMZ
0.0
0.0
38.0
-17.0
-11.2
-91.3
-1.2
4.1
Countries Meeting Criterion
4
2
1
3
5
3
5
4
Source: WAMZ 2003 and Database (Accessed 3rd June, 2010)
F. O. Egwaikhide and K. Ogunleye
97
Gross External Reserves be Greater Than or Equal to Three Months of Imports
This criterion is rooted in the belief that reserves serve as an insurance against sudden
stops or reversals in capital inflows. The WAMZ countries appear to be doing very well
in this criterion except for Guinea that has consistently failed to meet it since 2003. One
of the major factors that have helped most WAMZ countries in meeting this criterion is
the prolonged benign commodity prices in the global markets. This has helped the
countries, especially Nigeria in meeting the criterion. For instance, external reserves in
Nigeria have been consistently high with a peak of financing over 22 months of imports
in June 2008. This was achieved as a result of the consistently high prices of crude oil in
the global market. On the flip side, some of the major constraints facing Guinea in
meeting the criterion are the high volatility in the external sector and prolonged
macroeconomic weakness in the country. It is interesting to note that even the recent
global financial and economic crisis did not significantly affect the WAMZ countries in
meeting this criterion. However, Ghana also failed to meet this criterion in 2008. This
was partly due to the negative effects of the global financial and economic crisis that
resulted in dwindling official and investment flows coupled with the fall in export
demand. The fall in foreign prices of minerals due to the crisis was also responsible for
the observed slight drop in reserves in Sierra Leone. On the other hand, the little growth
in reserves observed in The Gambia was the result of the significant rise in aid flows
from both the African Development Bank and the World Bank for budget support.
Table 5: Gross Foreign Reserves (Months of Imports)
Country 2000 2001 2002 2003 2004 2005 2006 2007 2008
Gambia, The 7.5
8.2 5.2 4.6 5.0 5.2 4.9 5.5 6.1
Ghana
0.8
1.4 2.7 5.0 4.6 4.1 4.1 4.0 2.2
Guinea
2.2
2.9 2.4 1.1 0.7 0.6 0.5 0.4 0.6
Nigeria
13.6
8.9 6.2 4.9 11.6 11.6 14.4 13.4 13.8
Sierra Leone 2.8
2.2 -0.4 2.0 4.2 3.8 4.9 4.5 4.2
WAMZ
n.a.
7.3 5.3 4.7 9.6 10.0 12.3 11.6 11.2
Countries Meeting Criterion
n.a.
3
3
3
4
4
4
4
3
Source: WAMZ 2003 and Database (Accessed 3rd June, 2010)
Vol. 10, No.1 Journal of Monetary and Economic Integration
98
Secondary Criteria
The secondary convergence criteria are five in number. These are: (1) tax revenue as a
ratio of GDP should be greater than or equal to 20%; (2) wage bill to tax revenue must
be less than or equal to 35%; (3) public investment as a ratio of tax revenue must be
greater than or equal to 20%; (4) real exchange rate stability must be maintained within a
band of 15%; and (5) real interest rate must be kept positive.
A cursory look at the countries suggests that their performance in the secondary criteria
largely mirror performances in the primary criteria. Ghana is the only country that has
been consistent in meeting the tax revenue criterion since 2003, reaching 25.4% in 2008.
No other WAMZ country has ever met this criterion at any point in time. This failure
demonstrates the weakness of domestic resource mobilization machineries in the
WAMZ countries. The impressive result in Ghana is informed by the country‘s relatively
more sophisticated tax collecting system, priding itself as the only country with highly
functional and effective VAT system in the Zone. Indeed, while its VAT rate is 15%,
Nigeria has a VAT rate fixed at mere 5%. This tends to demonstrate the notion that
resource rich countries are relatively poor in mobilizing non-resource tax revenues
compared to their relatively less resource endowed countries (Ogunleye and Fashina
2010). This is further corroborated by the fact that Sierra Leone – another highly
resource endowed economy – consistently performed worse on this criterion, generating
less than 10% between 2000 and 2008 except in 2001 and 2008.
Nigeria is the best performer on the wage bill, meeting this criterion throughout the
entire period except in 2002. This was followed by The Gambia and Guinea that missed
meeting this criterion only in 2001 and 2002, for the former, and 2001 and 2003, for the
latter. Ghana never for once met this criterion. This is a result of the country‘s salary
structure. Apart from Nigeria that consistently met the domestic revenue criterion, no
other country was able to meet this requirement apart from Ghana in 2006, 2007 and
2008. Guinea managed to achieve this feat in 2003 with a very close shave of 19% the
following year. Harsh business environment that makes establishing and managing
business very cumbersome is a candidate explanation. Apart from Ghana that
consistently recorded negative real interest rates throughout the entire period, the
performance on this criterion was mixed for all the countries. Nigeria barely recorded a
positive rate in 2007 and Sierra Leone in 2001 and 2002. High inflation rates that
characterized these economies explain this poor performance. In the case of exchange
rate depreciation, Sierra Leone was the best performer, meeting this criterion during the
entire period except in 2008 when it overshot by mere 0.3% point. This trend analyses
demonstrates varying performance across the countries and macroeconomic criteria,
demonstrating individual peculiarities of the economies in the Zone.
F. O. Egwaikhide and K. Ogunleye
99
LITERATURE REVIEW ON GLOBALIZATION AND ECONOMIC INTEGRATION
Globalization has been understood differently under varying contexts, given its
multidimensional nature straddling political, economic, and cultural issues. Giddens
(1990) defines globalization as the intensification of worldwide social relations linking
distant localities in such a way that local happenings are shaped by events occurring
many miles away and vice versa. The implication of this definition is that globalization
can be thought of as a process of integration of goods and capital markets across the
world in which barriers to international trade and foreign investment are significantly
reduced. Several drivers of globalization have been identified. These include
technological developments that improve information flows and reduce transport costs,
change in policy attitudes that favor liberalization of foreign investment rules, diminish
protectionism, and ease migration. This definition suggests deep integration of the world,
thus the use of expressions like ‗global village‘. Globalization begins with liberalization in
three important activities in quick succession, first in international trade, then FDI and
finally financial flows.
The literature contains several channels through which globalization could positively and
negatively affect economic performance. These can be broadly categorized into the direct
and indirect channels. Some of the direct channels include: innovations through
competition; augmenting low domestic income, savings and capital formation; transfer of
technology from industrialized to developing economies; reduction in cost of capital and
cost of financial intermediation through risk sharing; and domestic financial sector
development. On the other hand, the indirect channels are promotion of specialization,
commitment to better economic policies and improvement in institutions.
There is a great debate on the impact of globalization, especially financial and economic
globalization on macroeconomic variables with some studies establishing positive
impact, others negative relationship and yet others mixed effects. For instance,
employing capital account liberalization as a measure of financial openness, Quinn (1997)
and Klein and Olivei (2006) find a positive relationship between financial openness and
economic growth. In contrast, Grilli and Milesi-Ferretti (1995), Kraay (1998), Rodrik
(1998), and Edison, et al (2002) could not establish any relationship between these
phenomena. Other studies, such as Arteta, et al (2003), Chanda (2005) and Ogunleye
(2008a) find that the effect is mixed or fragile.
Despite the expected laudable positive effects of globalization on the economies of
developing countries, evidence also abounds on its negative effects. For example, Levine
Vol. 10, No.1 Journal of Monetary and Economic Integration
100
and Schmukler (2003) posit that the internationalization of firms, a product of financial
globalization, reduces the liquidity of the remaining firms in the domestic market (See
also Alexander et al, 1987; Domowitz et al, 1998 and 2001; Hargis, 1997 and 2000; Hargis
and Ramanlal, 1998; Karolyi, 1996 and 2002; Moel, 2001; Schmukler and Vesperoni,
2003; and Smith and Sofianos, 1997). Globalization can also lead to crises given the
imperfections in international financial markets. This is because integrated economies are
more prone to crises and contagion spreads more rapidly in such economies as we have
witnessed in the recent global financial and economic crisis. The imperfections in highly
integrated markets can generate herding, bubbles and irrational behavior, speculative
attacks and crashes among other things. Imperfections in international capital markets
can lead to crises, especially balance of payments crisis even in countries with sound
fundamentals.
Countries that are dependent on foreign capital could experience financing difficulties
and sharp economic downturn if there are sudden shifts and reversals in foreign capital
inflows resulting from global activities. When countries rely excessively on foreign capital
inflows relative to their ability to generate financial resources in the domestic economy,
they become vulnerable to sudden reversals of capital flows and, consequently, to
liquidity crises. One of the most important of such crises is, of course, financial crisis
(Demirguc-Kunt and Detragiache 1999 and Glick and Hutchison 2001). Indeed, the
experiences of most African countries including the WAMZ during the recent global
financial and economic crisis are clear evidential demonstration of this argument.
The key mover of economic and regional integration is the view that sovereign interests
are best promoted through regional actions (ECA 2002). Indeed, regional integration in
Africa has been viewed as the first step toward global integration. Generally, regional
integration is often cast in the context and scope of deepening and widening (see
Weintraub 1994, Hoberg 2000 and Gomez and Gunderson 2002). While the former
involves the expansion of the range of market exchanges for goods and services achieved
through reduction in tariff and non-tariff trade barriers, the latter involves the extension
of these measures across countries and regions.
There are dissenting views on the effects of globalization on inflation dynamics. Thus,
opinions on such effects have been dubbed gradual and limited (Kohn 2005) while
others have seen it as modest (Yellen 2006). Some believe that globalization has helped
tame inflationary pressures through more intense global competition that prevents firms
from engaging in wanton increase in prices. There has also been fragmentation in the
production of manufactures in favor of emerging labor cost effective countries especially
of Asia, and integration of lower-cost producing emerging markets such as China and
F. O. Egwaikhide and K. Ogunleye
101
India into the global trading system. Others believe that there is very little reason to
believe that globalization has changed the structure of the Phillips curve or the level of
inflation in the long-run (Ball 2006). IMF (2006) identified a few channels through which
globalization influences inflation. These include: policy incentives; trade integration and
price level declines; increased productivity growth and aggregate supply; and inflation
response to domestic output fluctuations (see Romer 1993, Fischer 1997, Rogoff 2003
and 2006, and Tytell and Wei 2004).
In both empirical and policy debates, trade integration has been identified as the basic
channel through which globalization affects inflation (Sbordone 2008). Exploring this
channel further, Benigno and Faia (2010) narrowed this effect down to an increase in the
impact of import prices on the overall price index due to an increase in the number of
foreign products in domestic markets and an increase in the dependence of the pricing
strategies of domestic firms on foreign components, due to the increase in competition
with foreign firms. Earlier, Bernanke (2007) hinges the relationship on reduction in the
market and pricing power of domestic enterprises coupled with lower import prices of
both intermediate and final goods that force down general price level.
Globalization and the openness it induces seem to have similar effects on emerging
economies as it appears to have tamed the upward trend in inflation. This is because the
low-skilled workers provided by these countries, prominent among which are China and
India, and geographic shift of production toward them have led to an increase in global
supply of low-cost goods and services (Ahearne et al 2003). Thus, notable multinational
enterprises have opened major production facilities in these areas, moving in capital to
take advantage of the cheap labor and relatively benign economic and business
environment. Such large scale and relatively cheap production have resulted in relatively
low cost of production and subsequently reduced inflation.
The effects of globalization on interest rates, monetary and fiscal policies results from
the way and manner in which it alters the monetary and fiscal policy environment, with
serious implications for the design and formulation of policies. For one thing,
globalization limits the freedom of Governments in the application of monetary and
fiscal policies. This becomes more challenging given the large financial flows induced by
financial globalization. Indeed, with large capital flows due to financial globalization,
simultaneously maintaining fixed exchange rates and independently conducting monetary
policy have become highly impossible. The rising tide of globalization has further
reinforced the ―impossible trinity‖ – simultaneously maintaining fixed exchange rates,
independent monetary policy and free capital mobility. This trend has led to the large
scale desertion of pegged exchange rates in recent times (Fischer 2001). In addition,
Vol. 10, No.1 Journal of Monetary and Economic Integration
102
international financial dependence in which there is global competition for savings and
investment suggests that interest and exchange rates be made reactive to international
interest rates differentials. Growing globalization demands better understanding of the
traditional monetary policy mechanisms of exchange rate and credit channels that appear
to have been influenced by this growing phenomenon. As was amply demonstrated
during the recent global financial and economic crisis, globalization increases the risks of
contagion, even to the most remote economies of the world. For instance, disturbances
and policy decisions in the Unites States sub-prime market became a global phenomenon
affecting almost all economies of the world. Thus, the conduct of monetary, financial
and fiscal policies must take cognizance of international dependence, actions and
inactions in other parts of the world.
The conclusion so far on the effects of globalization on macroeconomic convergence
criteria, policies, variables and performance is that countries must double their efforts if
they must harness and maximize the real and potential benefits offered by globalization
and minimize its possible negative effects. Thorough understanding of the way and
extent to which globalization has altered the behavior of macroeconomic aggregates
should inform a proactive policy that will leverage on the benefits offered by
globalization while minimizing its risks.
DATA AND METHODOLOGICAL ISSUES
The Data
The globalization variable is obtained from the 2010 KOF Index of Globalization that measures all dimensions of globalization. Following Clark (2000), Norris (2000) and Keohane and Nye (2000), KOF Index of Globalization‘s working definition of globalization is ―the process of creating networks of connections among actors at multi-continental distances, mediated through a variety of flows including people, information and ideas, capital and goods. Globalization is conceptualized as a process that erodes national boundaries, integrates national economies, cultures, technologies and governance and produces complex relations of mutual interdependence‖. Measures of globalization are decomposed into three broad categories: economic, social and political globalization, weighted 37%, 39% and 25%, respectively. In addition, a composite index of globalization is developed that integrates all the three. In all, the 2010 version of this database is derived from 24 different variables and covers the period 1970 – 2007. Economic globalization is made up of data on actual flows and on restrictions. While data on actual flows comprises of trade, foreign direct investment flows, foreign direct investment stock, portfolio investment and income payments to foreign nationals, all measured as percentage of GDP, data on restrictions is made up of hidden import
F. O. Egwaikhide and K. Ogunleye
103
barriers, mean tariff rate, taxes on international trade measured in percentage of current revenue and current account restrictions.
Flows of ideas and information are the focus of social globalization. This variable is
made up of three major components, namely, data on personal contact, information
flows and cultural proximity. The elements of the data on personal contact are telephone
traffic measured as the sum of international incoming and outgoing telephone traffic in
minutes per person, transfers measured as percentage of GDP, international tourism
calculated as the sum of arrivals and departures of international tourists as a share of
total population, foreign population comprising the number of foreign or foreign-born
residents in a country as a measure of total population and number of international
letters sent and received per person. Data on information flows is captured by number of
people with access to internet connection per 1000 persons, television availability per
1000 persons and trade in newspaper measured as the sum of exports and imports in
newspapers and periodicals in percentage of GDP. Similarly, data on cultural proximity is
developed from an index of number of Macdonald‘s Restaurants per head, number of
Ikea per person and trade in books measured as the sum of exports and imports of
books and pamphlets as a percentage of GDP.
Lastly, political globalization dwells on the degree of political cooperation and integration
among countries and is composed of absolute number of embassies in a country,
membership of a country in international organizations, participation in UN security
Council missions measured as the number of personnel contributed per head and
number of international treaties entered into by a country, taking account only of
documents signed between two or more states and ratified by the highest legislative body
of each country since 1945.
In the KOF Index of Globalization database, globalization is measured on a scale from
1–100 where higher value denotes greater integration while lower value suggests less
globalization. To restrain the possible effects of extreme data points and volatility over
time, the underlying variables are divided into percentiles. For the purpose of this paper,
the composite index of globalization is employed. Subsequent analysis will examine
globalization in its disaggregated form with a view to establishing the relative importance
of these measures of globalization in explaining the dynamics of macroeconomic
convergence in WAMZ countries.
The data on inflation, foreign reserves, exchange rates, real interest rates, GDP per
capita, government expenditures and debt, current account balance as a percentage of
GDP, domestic savings measured in percentage of GDP, value of exports measured in
Vol. 10, No.1 Journal of Monetary and Economic Integration
104
US dollars, capital flows, lending interest rates, foreign economic activities, interest rate
differentials, foreign inflation rate, and nominal effective exchange rates are all sourced
from the Africa Development Indicators 2010 CD-ROM and International Financial
Statistics June 2010 CD-ROM.
Given the primary focus of this paper, our preoccupation will be on the effects of
globalization on the macroeconomic convergence variables in the WAMZ countries.
From the literature, the effects of globalization on these variables are ambiguous; it could
either improve or worsen them. Thus, the a priori effects of globalization on the
macroeconomic convergence variables are sometimes indeterminate. Given the gamut
of macroeconomic variables examined in the paper, eclectic theories underlining each
variable is employed. The modeling of each variable is based on standard practice in the
literature involving the determinants and dynamics of each variable. The empirical results
for each country show the choice of variables in each model.
Empirical Models
The analytical method for this paper is based on the short-run OLS technique with
robust standard errors. Given the new thinking on long-run econometric analysis
employing cointegration and error correction techniques, this methodology provides a
superior means of analysis. However, this technique requires large sample size in terms
of data points. But given data availability that spans 1980 to 2007 and the fact that the
focus of policies on macroeconomic convergence criteria in the WAMZ countries is a
recent phenomenon, there is no sufficient data for such long-run analysis. In this
situation, long-run analysis will be meaningless. Therefore, OLS technique is the most
appropriate methodology in this case. The analyses ensure that sufficient specification
and estimation diagnostic tests are employed to confirm the consistency and reliability of
the estimated results.
The empirical models for this investigation are eclectic, informed by the wide array of
macroeconomic variables and issued being investigated. While the literature provides the
major impetus for structuring the models, our understanding of the nature, structure and
specific underlying socio-economic fundamentals in each WAMZ country, and data
availability provide the final input for the models.
Inflation The theoretical and empirical models of inflation are wide, varying and growing, given
the dynamics of the global economy and its impact on national economies. Such models
cut across several theoretical postulations and different schools of thought – monetarist,
structuralist and fiscal. Sometimes these models are cast in the context of cost-push and
F. O. Egwaikhide and K. Ogunleye
105
demand-pull. Added to this is the globalization phenomenon. Based on these, several
country- and region-specific models of inflation have been investigated (see, for instance,
Sekine 2001, Hofmann 2006, Khan and Schimmelpfennig 2006, Borio and Filardo 2007,
Diouf 2007 and Cheung 2009). In specifying our model for investigating the effects of
globalization on inflation convergence criterion, we take cognizance of these
developments and most particularly the peculiar nature and structure of the WAMZ
countries being investigated. Thus, the following model is proposed for investigation.
*
1( , , , , , )
tf g i n y G
(1)
represents the inflation rates in the countries. This is measured as the consumer price
index in all the countries except Sierra Leone where the only available measure is the
GDP deflator. 1t
captures inflation expectations which is inflation rate in the
previous period. The foreign inflation rate is denoted by *
and measured as the average
wholesale price index of the five largest European economies5, the UK and US. This
variable is included to capture the extent to which foreign inflation influences domestic
inflation given the import-dependent nature of WAMZ countries. Our variable of
interest – globalization – is symbolized by g and remains as earlier defined. Nominal
interest rate is designated as i while n refers to the nominal effective exchange which
by construction is a weighted average of bilateral exchange rates relative to currencies of
major trading partners. Size of the economy is signified by y and measured as GDP
per capita. The effects of fiscal activities are represented by G that stands for fiscal
expenditure and debt. Given the knowledge from the literature, the a priori effect of
globalization on inflation is uncertain. However, it is pertinent to expect that
globalization and its accompanied international competition would lower markups and
thus inflation.
Reserves Accumulation
There is no consensus on the theoretical and empirical model of reserves behavior across
countries. In most cases, countries have different motivating factors for reserve
accumulation, prominent among which are exchange rate and market stability, liquidity,
creating buffer for a ‗rainy day‘ and maintaining credibility and credit worthiness.
Generally, several determinants of the reserve accumulation behavior of countries are
5 These are Germany, France, Italy, Spain and Netherlands
Vol. 10, No.1 Journal of Monetary and Economic Integration
106
identifiable and include vulnerability to external shock visible through the current and
capital account positions, exchange rate regime and opportunity cost of holding reserves
(see, for instance, Heller 1966, Iyoha 1976, Landell-Mills 1989, Archer and Halliday 1998,
Lane and Burke 2001, Mendoza 2004, Gosselin and Nicolas 2005, Stiglitz 2006,
Aizenman et al. 2007, Elhiraika and Ndikumana 2007, Osabuohien and Egwakhe 2008,
Yeyati 2008 and Olokoyo et al 2009). Based on the literature and peculiarities of WAMZ
countries, we estimate the following model:
( , , , , , , )f g k i t c y (2)
The volume of reserves measured in percentage of GDP is typified by while g
denotes globalization, our variable of interest. The extent to which capital controls
influence reserves accumulation is represented by capital flows ( k ) while lending rate ( i) captures the opportunity cost of accumulating reserves. The total value of trade (exports and imports) is denoted by t and c represents the current account balance.
Output per capita ( y ) is included to control for the level of economic development and
is measured as GDP per capita. Globalization induces increased trade that might lead to a rise or fall in reserves accumulation, depending on whether the country is a net importer or net exporter.
Exchange Rate Several variables have been identified to determine the changes in exchange rates.
Concentrating on recent empirical analytics given the dynamics of determinants of
exchange rate, similar cross-country determinants are identifiable. Grants inflow was
identified by Rajan and Subramanian (2005) as important, especially in aid-dependent
economies, resulting in real exchange rate overvaluation. Similar findings were
established by Elbadawi et al. (2008) in a cross-country study, confirming that foreign aid
inflows lead to appreciation of the equilibrium real exchange rate (for more studies that
have established similar results, see Saadi-Sedik and Petri 2006). In a panel study, Lane
and Milesi-Ferretti (2006) found that large external liabilities that result in large external
resource flows lead to exchange rate depreciation while grant-based resource inflows
induces real exchange rate appreciation. A converse result was, however, established by
country-specific studies that posit that resource inflows rather lead to real exchange rate
appreciation (see Ogun 1995, Sackey 2001, Li and Rowe 2007). In addition to grants,
Saadi-Sedik and Petri (2006) have identified remittances as additional explanatory
variables. In a completely different finding, Berg et al. (2007) and Lee, et al (2008)
submitted that capital inflows into SSA countries do not induce real exchange rate
F. O. Egwaikhide and K. Ogunleye
107
appreciation; it rather leaves the exchange rate stable or depreciated. For our empirical
estimation, the following model is specified:
( , , , , , , )x f g tr k id y d (3)
Exchange rate changes is denoted by x , g represents globalization, tr represents the
value of trade, k refers to capital flows defined as total inflows of FDI, private capital,
aid and remittances. Inflation is represented by , while id measures the difference
between interest rate in the respective countries and the average interest rates in the five
biggest economies of the EU, the UK and US. Economic output, measured as the GDP
per capita, is captured by y while d symbolizes output difference. The latter is
measured using the same technique as was done for the interest rate difference but using
GDP per capita. Exposure to international fluctuations in trade, capital flows and
contagion is expected to increase movements in exchange rate that could either be
appreciation or depreciation, overall. Thus, the overall effects of globalization on
exchange rate movements are ambiguous as it depends on the peculiar nature and
structure of the economy under consideration.
Real Interest Rates
Economic theory provides little guidance on a universally acceptable model for real
interest rates (Upper and Worms 2003). Thus, several empirical models have been
developed to investigate the dynamics of this variable. Blanchard and Summers (1984),
Barro and Sala-i-Martin (1990) and Al Awad and Goodwin (1998) are among the earliest
studies to proffer that international financial integration is a prominent determinant of
real interest rates. Orr et al (1995) identified surprise inflation, profitability, fiscal deficit, a
measure of risk, and the current account position as notable determinants. Pain and
Thomas (1997) and Wu (1999) established strong effects of interest rate differentials on
real interest rates movement. For the purpose of this paper, the following model is
estimated:
( , , , , , , , )e
R f g G c r x s (4)
For equation (4), R represents the real interest rates, g
is the globalization index, G
denotes the total government expenditures and debt, while c symbolizes the current
account balance. Expected inflation is characterized by e
while r typifies risk. Our
Vol. 10, No.1 Journal of Monetary and Economic Integration
108
measure of risk is total summed magnitudes of all interstate societal and interstate major
episodes of political violence plus the sum of all societal (civil and ethnic) Major
Episodes of Political Violence (MEPV) magnitude scores for all neighboring states. The
latter is added in recognition of the fact that the risks in any country is affected not only
by its own conflict outbreaks and dynamics, but also by conflict in its immediate
proximity – neighboring states – and in general proximity – the ―politically-relevant‖
regional system (for detailed description of the composition and computation of this
dataset, see Marshall 2010). Nominal effective exchange rate is represented by x while
s symbolizes savings, measured as gross domestic savings.
Interdependence induced by globalization equilibrates, dampens and spreads shocks and
reduces booms and bursts as scarcity and excesses are shared across countries. This is
especially true for financial resources. Thus, globalization reduces risks associated with
investments and business cycles and enhances investors‘ confidence (Wu 2006). Since
these are all components of real interest rates, globalization is thus expected to reduce
real interest rates. Moreover, globalization, especially financial globalization, has induced
increased global savings through financial resource pooling. This has made available
significant financial and loanable resources available, expectedly leading to reduced real
interest rates.
EMPIRICAL ANALYSIS
The empirical analyses will be undertaken for both primary and secondary criteria for
which data are available over a reasonable length of time to enable meaningful analyses.
Inflation rates, foreign reserves, exchange rates and real interest rates are available for the
Gambia, Ghana, Nigeria and Sierra Leone while similar analyses will be done for Guinea,
but for real interest rates. The estimated results for each country are presented in
individual tables. For the Gambia, Ghana and Nigeria, the estimations are based on data
that spans 1980 to 2007, while Guinea covers 1990 to 2007. To imbue confidence in the
reliability of our findings, the estimated results are subjected to rigorous diagnostic tests.
It is a common knowledge that if the error term is serially correlated, the estimated OLS
standard errors are invalid and the estimated coefficients will be biased and inconsistent.
The Durbin-Watson (D-W) Statistic and Breusch-Godfrey (B-G) serial correlation LM
tests (up to order two) are undertaken to check for existence or absence of serial
correlation while Ramsey RESET test is conducted to investigate stability of the models.
Jarque-Bera (J-B) statistic is employed for testing normality in addition to the standard
tests of the overall explanatory power of the models using adjusted 2
R and F-statistic.
The results show that all the models are free from all forms of specification and
F. O. Egwaikhide and K. Ogunleye
109
estimation errors, thus indicating consistency and reliability of the results. Consequently,
the estimated coefficients reflect the true (efficient and unbiased) relationship in the
models.
Gambia
The empirical outcomes for The Gambia suggest that globalization has significant effects
only on exchange rate dynamics (see Table 6). While globalization reduces inflation,
increases foreign reserves and raises real interest rate, these effects are not statistically
significant. For real exchange rate, the effects of globalization leads to appreciation of the
Dalasi and this is statistically significant. The results demonstrate that the overall effect
of globalization on exchange rates in The Gambia is appreciation of the Dalasi.
One major factor that limits the effects of globalization on The Gambian economy as
reflected in the empirical results is its small size and limited state of integration with the
rest of the world in addition to its trade policy. Due to its small size, The Gambia has
very little share in global trade. This is made worse by the nature of its main exports –
groundnut – accounting for about 70% of total exports. In addition, the level of
integration of the economy with the world has been relatively slow. For instance, The
Gambia did not become a member of the World Trade Organization until recently –
23rd October 1996. This limits the extent of economic integration and adoption of
international best practices in trade policy. The maximum external tariff was 90% in 1998
and was not reduced to 18% until 2000. Similarly, the number of tariff bands was 30 and
was not reduced to three until the same period. Indeed, the trade regime was not
substantially liberalized until very recently. In addition, the country did not become
eligible for the AGOA initiative until 1st January 2003. Thus, size, level of integration
and policy are important determinants on the extent to which the effects of globalization
have been felt in The Gambia. Low financial integration in The Gambia also limits the
extent to which globalization influences real interest rates. Before opening the banking
sector for some Nigerian banks very recently, the level of integration of the financial
sector with the world was very limited.
The level of development is another factor that limits the effects of globalization on
macroeconomic convergence criteria in this country. The Gambia ranks among the least
developed countries of the world with a per capita income of US$320 in 2001. In fact,
nearly 50% of the population lives below the poverty line, with the incidence of poverty
much higher (60% or more) in rural areas. In almost all human development indicators,
The Gambia performed below the SSA average, ranking among the lowest in the Human
Development Index. Globalization, especially economic globalization, thrives on
available opportunities. International multinational corporations, the driver of
Vol. 10, No.1 Journal of Monetary and Economic Integration
110
globalization, are interested in large markets and opportunities that would further
promote cost reduction and increased market.
The observed strong influence of globalization on real exchange rate is the result of the
exchange rates liberalization policy of The Gambia which began progressively as far back
as 1986, making the dalasi freely convertible and subject to national and global market
factors. The monetary authorities intervene only on rare occasions purposely to
smoothen excessive fluctuations. Another important factor is the prominence accorded
to tourism as the highest foreign exchange earner. The stable and mild inflow of foreign
currencies through tourist arrivals has helped maintain stability in exchange rate between
the Dalasi and other major world currencies.
Our empirical findings further show that real GDP per capita and real interest rate have
statistically significant negative relationship with inflation. This suggests that a rise in
income and interest rates leads to a reduction in inflationary pressures in The Gambia.
Bank lending channel is the possible transmission mechanism through which this occurs
given its effects in reducing total money supply. On the other hand, capital flows
expectedly increases inflation rate. Total government expenditure and trade exerts
statistically significant influence on foreign reserves while exchange rate movements
reduce it. Appreciation in exchange rates make exports more expensive. This
phenomenon also makes The Gambia more expensive as tourist destination for
prospective tourists. These factors reinforce each other to reduce foreign exchange
earnings and reserves accumulation. The positive and statistically significant impact of
government expenditure and debt on foreign reserves could be as a result of the
government channeling its expenditures and debts to developing foreign exchange
earning activities such as tourism and export-oriented agriculture production.
In addition to globalization, income also induces statistically significant appreciation in
the Dalasi while capital flows, output differentials and interest rate differentials stimulate
depreciation. The case of output differential is very interesting. It suggests that as its
trading partners experience higher output relative to the country – suggesting higher
dependence on them perhaps for aid, loans and investment – higher capital inflows from
these partners tends to depreciate the domestic currency. Government expenditure and
debt is a major determinant of increased real interest rate in The Gambia. This could be
the result of the high total credit extended to the government that tends to reduce
available credit, thus raising interest rate.
F. O. Egwaikhide and K. Ogunleye
111
Table 6: Globalization and Macroeconomic Convergence in The Gambia
Inflation Foreign Reserves
Exchange Rate
Real Interest Rate
Globalization -0.0543 (0.4792)
0.0432 (0.0535)
-1.5660*** (0.4193)
0.1447 (2.1113)
Real GDP Per Capita -0.1175* (0.0568)
-0.0025 (0.0056)
-0.8786*** (0.2571)
Total Government Expenditure and Debt
-1.8330 (13.1871)
3.5166*** (0.8059)
2.9665*** (0.9485)
Current Account Balance 0.0120 (0.0279)
Inflation 0.0557 (0.0321)
Domestic Savings -0.2834 (0.3683)
Trade 0.0304** (0.0126)
0.1882 (0.2305)
Capital Flows 4.6505* (22.7995)
-2.5075 (2.3006)
0.1986** (0.0732)
Lending Interest Rate -0.0326 (0.0683)
Real Interest Rate -0.3150* (0.1699)
Output Differentials 6.1470*** (0.8049)
Foreign Reserves -0.0423 (0.0803)
Money Supply -0.6789 (1.3346)
Interest Rate Differential 0.0302* (0.0142)
Foreign Inflation Rate 0.6967 (0.7319)
Exchange Rate -0.2249*** (0.0723)
-3.5241*** (1.1978)
Nominal Effective Exchange Rate
-0.0376 (0.0479)
Inflation Expectations -0.0771 (0.1707)
-0.0040 (0.0132)
Risk 0.1077 (0.3618)
Diagnostic Tests Adjusted R2 0.7187 0.7994 0.9856 0.5351 F-Statistic 8.6666 12.9524 13.5696 2.3021 Serial Correlation
D-W 2.0944 1.6046 1.9647 2.4621 B-G 0.8218 0.3274 0.9828 0.7240
Jarque-Bera statistic 0.1417 0.6884 0.6350 0.1104 Ramsey‘s RESET Statistic 0.0000 0.0074 0.0178 0.0011 No of Observations 28 28 28 28
Vol. 10, No.1 Journal of Monetary and Economic Integration
112
Ghana
Globalization has statistically significant effects on all the macroeconomic convergence
criteria in Ghana during the period under investigation (see Table 7). It raises inflation,
foreign reserves and real interest rates and induces depreciation in the real exchange rate.
The effect of globalization on real interest rates is contrary to theoretical expectations.
However, this could be explained by the relatively less integrated nature of the financial
sector until recently. Before the recent liberalization of financial activities, especially the
banking sector that led to the proliferation of some Nigerian-owned banks, the banking
business in Ghana was dominated by a few multinational banks – Standard Chartered
and Barclays Bank – that greatly dominated the sector. This was complemented by a few
local banks that had very limited share of the market. This phenomenon is a prominent
explanation for the high interest rate spread in the economy that subsists up till now.
Thus, the limited integration of the sector in terms of opening for competition is a
candidate explanation for this perverse relationship.
In the same vein, the channel through which globalization increases inflation rates in Ghana is perhaps through foreign imports as explained by the statistical significance of the foreign inflation rate. This is plausible because Ghana is a high import dependent country. Thus, the inflationary component of the goods and services imported from these foreign countries might have increased inflation in the domestic economy. Another interesting feature is the fact that globalization induces appreciation in the Ghana Cedi. One possible channel through which this occurred is increased overall capital flows into the Ghanaian economy, especially aid and remittances. When such large capital inflows remain unsterilized, it exerts pressure on the currency that induces appreciation. This is a probable potent explanation given the history of Ghana as high aid and remittance dependent economy. Inflation expectation exerts statistically significant effects on inflation rate in Ghana, suggesting that high inflation expectations provokes high inflation rate while low inflation expectations leads to a realization of low inflation rate. This is a very important advantage because it makes it easier for the monetary authorities to effectively model inflation in the economy. Exchange rate significantly reduces foreign reserves in Ghana, suggesting that the government may be using the foreign reserves as a lever for managing the exchange rate of the Ghana Cedi vis-à-vis other major currencies of the world, notably the US Dollar. It is also noteworthy that increased government expenditure reduces real interest rate most probably through increased money supply.
F. O. Egwaikhide and K. Ogunleye
113
Table 7: Globalization and Macroeconomic Convergence in Ghana
Inflation Foreign Reserves
Exchange Rate
Real Interest Rate
Globalization 2.9599** (1.2733)
6.2819* (3.1497)
0.9536*** (0.3421)
0.8887** (0.4086)
Real GDP Per Capita -0.3766 (0.4630)
2.7391 (3.3341)
0.0005 (0.0016)
Total Government Expenditure and Debt
-17.2005 (9.4757)
0.5024** (0.2135)
-8.00E-09*** (1.83E-09)
Current Account Balance 0.0766** (0.0301)
-0.4787 (0.3608)
Inflation 0.0004 (0.0009)
Domestic Savings 1.1538 (0.4761)
Trade -1.0440 (1.3391)
0.0303 (0.0944)
Capital Flows -12.4481 (8.3576)
-0.1947 (0.5836)
-0.0457 (0.0928)
Lending Interest Rate
Discount Rate 0.2323 (0.2078)
Output Differentials 1.1515** (0.5997)
Foreign Reserves 0.0086 (0.0137)
Interest Rate Differential -0.0105 (0.0026)
Foreign Inflation Rate 2.2599* (1.1225)
Exchange Rate -1.3745* (0.7140)
Nominal Effective Exchange Rate 0.0063 (0.0125)
-8.74E-05 (3.48E-05)
Inflation Expectations 4.8704*** (1.9703)
-0.0177 (0.0520)
Risk -3.7141* (2.1616)
Diagnostic Tests Adjusted R2 0.9389 0.7448 0.9373 0.6240 F-Statistic 33.6667 3.6485 51.4718 7.4012 Serial Correlation
D-W 2.9850 2.2960 1.9711 1.9724 B-G 0.5086 0.5516 0.3898 0.9710
Jarque-Bera statistic 0.4984 0.5504 0.1830 0.4234 Ramsey‘s RESET Statistic 0.0000 0.0683 0.0238 0.0496 No of Observations 28 28 28 28
Vol. 10, No.1 Journal of Monetary and Economic Integration
114
Guinea
Assessment of the effects of globalization on macroeconomic convergence criteria could
be done for only three variables for Guinea due to data availability. For all of these
criteria, statistically significant effects were found only for foreign reserves. In this case,
globalization increases foreign reserves accumulation. The possible channel through
which this occurs is most likely to be the rich mineral economy and exports that is typical
of the country. Guinea is a richly endowed economy with minerals that include bauxite,
iron ore, diamond, gold and uranium. It has been estimated that the country possesses
an estimated 25% of the world's proven reserves of bauxite. In fact, bauxite and alumina
production is believed to be generating about 80% of Guinea's total foreign exchange.
This mineral wealth has attracted many multinational mining companies, especially
American firms. These have been joined in recent times by Chinese competitors that are
also interested in these minerals. Thus, through the activities of these multinational firms,
Guinea has been integrated into the global economy and has reaped billion of dollars in
exports of minerals. Part of the foreign exchange earned must have been utilized to
shore up the foreign reserves, thus explaining the positive significant relationship.
Table 8: Globalization and Macroeconomic Convergence in Guinea Inflation Foreign Reserves Exchange Rate
Globalization 0.5379 (1.5850)
0.2111** (0.0741)
0.2045 (1.2195)
GDP Per Capita 0.0216 (0.2694)
0.0219* (0.0115)
-5.5567 (4.0353)
Total Government Expenditure and Debt -3.2572 3.0359
-1.5465 (0.4483)
Inflation -0.0188 (0.0291)
Trade 0.0034 (0.0110)
1.0451*** (0.2244)
Capital Flows 4.3452*** (1.2531)
8.2865 (5.0379)
0.3084* (0.1637)
Foreign Reserves -0.0570 (0.1823)
Interest Rate Differential -0.0092* (0.0049)
Foreign Price Level 0.9126 (1.6701)
Output Differential 8.9008** (3.5070)
Exchange Rate 0.0156** (0.0055)
Inflation Expectation -0.0612 (0.2675)
Money Supply -1.4052 (1.6694)
Price of Bauxite 0.2846*** (0.0987)
Diagnostic Tests Adjusted R2 0.7469 0.7159 0.9684 F-Statistic 3.3207 9.5696 6.6163 Serial Correlation D-W 2.0743 1.9876 2.1734
B-G 0.6584 0.8865 0.7589 Jarque-Bera statistic 0.5591 0.6325 0.5770 Ramsey‘s RESET Statistic 0.0033 0.0442 0.0067 No of Observations 18 18 18
F. O. Egwaikhide and K. Ogunleye
115
Capital flows is a significant determinant of inflation in Guinea. This is likely the result of
the capital flows originating from mineral exports that were allowed to filter into the
domestic economy unsterilized. This is especially true if such capital flows are not
invested in expanding productive capacities with a view to easing the supply-side
constraints. This fact is corroborated through the estimated positive relationship between
exchange rate and inflation, meaning that exchange rate depreciation reduces the
inflationary pressures in the economy. Similarly, trade – predominantly mineral exports –
induces appreciation in the domestic currency. This suggests that the economy may be
manifesting the Dutch disease, a typical syndrome in most mineral exporting African
countries.
Nigeria
Globalization is a statistically significant factor influencing the behavior of the entire
macroeconomic convergence variables under consideration in Nigeria (see Table 9). It is
especially noteworthy that globalization induces a rise in foreign reserves and exchange
rate depreciation. This is expected given the high integration of the Nigerian economy
through several channels. One of this is the oil sector. The Nigerian economy has been
globally integrated for a long time through the activities of multinational oil firms
operating in the oil sector. Activities in this sector have made the country to reap billions,
perhaps trillions of petrodollars over the past decades (Ogunleye 2008b). The increased
activities in this sector – until the recent lull due to the Niger Delta crisis – coupled with
steadily rising world market price of crude oil provokes large inflows of capital. The
inappropriate macroeconomic, fiscal and monetary management policies involving the
large foreign currency inflows earned Nigeria the reputation of being a classic example of
an economy plagued by Dutch disease. This explains the observed currency appreciation
in the estimated results. By the same token, inappropriate policies have also made the
foreign currency inflows to filter into the real sector, causing the observed high inflation.
It is interesting to note, however, that Nigeria had used the proceeds from oil exports to
build large foreign reserves. In fact, Nigeria is the only country within the Zone and
perhaps in SSA that had acquired reserves that could cover almost two years of imports.
Even though this has been significantly run down in recent times, it has provided a lever
and policy space for the economy to maneuver as exchange rate management tool in the
face of the recent negative effects of the global financial and economic crisis. It is hope
that the rebound in the international market price of oil and resolution of the Niger
Delta crisis will help the country to return to the path of high reserves accumulation.
Vol. 10, No.1 Journal of Monetary and Economic Integration
116
Table 9: Globalization and Macroeconomic Convergence in Nigeria Inflation Foreign
Reserves Exchange Rate Real Interest
Rate
Globalization 4.1596** (1.4930)
1.0193*** (0.2233)
0.9164*** (0.3172)
3.9576** (4.4847)
Real GDP Per Capita 0.3629** (0.1532)
-0.0900 (0.096)
0.0013 (0.2811)
Total Government Expenditure and Debt
5.6682* (2.5360)
-0.5861 (0.6245)
Current Account Balance 0.0760 (0.0818)
8.8117
Inflation 0.0869 (0.3700)
Domestic Savings Trade Exports -3.8063***
(11.7135) -3.8023***
(1.0669) Capital Flows 7.8316***
(2.1054) 9.6174*** (3.2469)
-1.9511** (8.8804)
Lending Interest Rate Real Interest Rate -0.8952***
(0.1858) -0.1969 (0.4751)
Output Differentials 0.0210*** (0.0043)
Foreign Reserves -4.6528*** (0.9786)
Interest Rate Differentials -0.9135 (1.0110)
Foreign Inflation Rates -0.44025 (0.4682)
Exchange Rate -0.0722 (0.0420)
Nominal Effective Exchange Rates
-0.0003 (0.0009)
0.0137 (0.0396)
Inflation Expectations 0.3955*** (0.1270)
0.0211 (0.2583)
Crude Oil Price 0.7634*** (0.0425)
-0.4127*** (0.1324)
Money Supply -2.5180 (1.2616)
Risk 6.7782 (3.2002)
Diagnostic Tests Adjusted R2 0.7785 0.8128 0.8792 0.7851 F-Statistic 8.1211 8.0566 24.6634 8.6525 Serial Correlation
D-W 2.4722 2.0865 1.9291 2.5512 B-G 0.1204 0.9312 0.6179 0.6074
Jarque-Bera statistic 0.7652 0.8586 0.5436 0.6869 Ramsey‘s RESET Statistic 0.0030 0.0081 0.0013 0.0683 No of Observations 28 28 28 28
F. O. Egwaikhide and K. Ogunleye
117
The positive effects of globalization on real interest rate could be the result of the limited
opening of the banking sector to foreign operators. Most of the banks operating in the
country are locally owned with a reduction in the number with the recent consolidation.
It remains to be seen whether the consolidation with its attendant reduction in number
of banks will help lower or raise interest rate in the long run. A possibility is that it might
not since the number of well respected and innovative banks is few and could, therefore,
easily collude. Another possible explanation is that the financial integration of the
banking sector and the nature of banks operating there are more interested in real sector
investment rather than extending loans since the latter is less profitable given the nature
of borrowers in the market. In addition, the banks appear to be interested in foreign
financial market transactions in more mature emerging economies given the relatively
lower risks and higher returns in these economies. This action reduces the amount of
loanable funds available in the domestic economy, thus driving up interest rates.
A very critical issue emanating from the empirical results for Nigeria is the need for
proper management of oil proceeds. It could be seen that crude oil price is a major factor
determining currency appreciation in the country. Also important is fiscal discipline as
total government expenditure and debt are major factors contributing to real exchange
rise.
Sierra Leone
Sierra Leone is characteristic of economies where the effects of globalization on
macroeconomic convergence criteria are moderate. The most prominent effects are
established for exchange rate where globalization induced statistically significant
appreciation in the domestic currency. Again, proceed from mineral export is the most
potent channel through which this impact occurs. This position is further corroborated
by the statistically significant effect of globalization on foreign reserves. The recent
discovery of oil could, however, presents both opportunities and challenges for the
country in its design and management of macroeconomic variables. While the increased
revenues would be helpful in accumulating foreign reserves, it could also induce
exchange rate volatility and further deepen the Dutch disease. Therefore, the country
requires institutional and policy readiness in managing such external shock to avoid
undesirable consequences.
Vol. 10, No.1 Journal of Monetary and Economic Integration
118
Table 10: Globalization and Macroeconomic Convergence in Sierra Leone Inflation Foreign Reserves Exchange Rate Real Interest Rate
Globalization 1.3227 (1.2600)
0.2491* (0.1325)
-2.5467*** (0.7724)
-2.7175 (1.3089)
Real GDP Per Capita 0.1478 (0.1199)
-0.0109 (0.0096)
-1.7811 (0.4962)
Total Government Expenditure and Debt
0.8822** (0.4047)
8.1514*** (4.6316)
Current Account Balance
0.1874*** (0.0314)
-0.4708 (0.3187)
Inflation 0.2842** (0.1056)
Domestic Savings 0.0336 (0.3766)
Trade -0.0411 (0.0305)
0.3833 (0.3174)
Capital Flows -3.6054 (3.1110)
1.0239*** (0.1859)
Lending Interest Rate -0.0498** (0.0209)
Real Interest Rate -1.6266*** (0.2495)
Output Differentials 2.2951*** (1.1128)
Foreign Reserves 0.2318** (0.1092)
Money Supply -2.2951** (0.9924)
Interest Rate Differentials
0.2377* (0.1238)
Foreign Inflation Rates -0.5696 (0.6876)
Exchange Rate -0.0009 (0.0009)
Nominal Effective Exchange Rates
-0.0002 (0.0002)
0.0009** (0.0004)
Inflation Expectations 0.0814 (0.1107)
0.0342 (0.0880)
Risk -1.4661 (1.3348)
Diagnostic Tests Adjusted R2 0.8814 0.8412 0.9915 0.7677 F-Statistic 29.6597 15.5630 35.4768 11.3869 Serial Correlation
D-W 1.5806 2.0742 1.9595 2.1941 B-G 0.2652 0.3590 0.4574 0.5347
Jarque-Bera statistic 0.9036 0.6794 0.8087 0.5814 Ramsey‘s RESET Statistic
0.0006 0.0000 0.0254 0.0037
No of Observations 28 28 28 28
F. O. Egwaikhide and K. Ogunleye
119
To encapsulate the empirical findings, a major trend emerging from the results suggests
that the larger the economy, the stronger the effects of globalization on the
macroeconomic convergence criteria. This is amply clear as it can be observed that
globalization exerts significant effects on macroeconomic criteria in economies like
Nigeria and Ghana as opposed to relatively smaller economies of The Gambia, Guinea
and Sierra Leone. Another interesting observation is that effects of globalization on
exchange rate are most prominent, turning out to be statistically significant in all the
countries. Rather than inducing a reduction in inflation rates, globalization rather
aggravates inflation in all the WAMZ countries except The Gambia. It is clear that the
effects of globalization on macroeconomic convergence criteria are similar but not
symmetric in all the WAMZ countries. This demonstrates the need for both country-
specific and Zone-wide policies in managing the effects of globalization so that its
positive impact is leveraged upon while effectively managing its deleterious effects.
POLICY RECOMMENDATIONS
WAMZ countries should begin by creating competitive economies that would be
followed by leveraging on the benefits of globalization among themselves through the
creation of efficient and non-distortionary markets for products and factors of
production, including freer movement of capital, labor and persons. This will help
broaden economic, market and investment base of these economies and help create
competitive advantage. In fact, promoting trade and investment through sound
economic, fiscal, monetary, institutional and risk management policies are the only sure
way to benefit from globalization in the Zone. One important consideration in this
respect is for the region to cut a market niche for itself especially in the area of crude oil
given the weight of Nigeria in this respect and the discovery of oil in Ghana, Sierra
Leone and in the potential member country – Liberia.
One way to dampen real exchange rate volatility in WAMZ countries would be for the Central Bank to increase foreign reserves accumulation. This would serve as a two-edge sword in achieving macroeconomic convergence criteria involving reduced fluctuations in exchange rate and improved reserves accumulation. As amply demonstrated in the case of Nigeria during the recent global economic and financial crisis, the high foreign reserves accumulation was the lever employed by the country to maintain stability in its Naira against major world currencies, especially the American dollar. In addition, some of the Central Banks of these countries are still in the habit of issuing paper-denominated domestic currency in their bid to sterilize the potential negative effects of capital inflows. This should be stopped forthwith and replaced by the use of dollar-denominated paper backed by the Central Bank. This policy action would help tame an upward trend in
Vol. 10, No.1 Journal of Monetary and Economic Integration
120
domestic interest rates. Resource rich countries like Nigeria, Guinea and Sierra Leone – this also applies to Ghana with the new oil discovery – should intensify efforts at creating and managing a credible fund for shoring up foreign reserves during boom in a transparent and accountable way. Due to limited capacity and fear of being hijacked by the elites, such fund could be placed under the jurisdiction of a supranational institution such as the African Development Bank or ECOWAS Bank for Investment and Development. To dampen foreign exchange volatility, WAMZ countries should reduce foreign aid dependency and improve domestic resource mobilization and use. This suggests that particular attention must be paid to domestic taxation and savings. The challenge in this respect is the large informal sector and hard to tax activities in these countries that tend to limit the tax base and tax revenues collectible. They should also be mindful of the nature of capital flows into the economy, focusing on technology-inducing and beneficial capital flows aimed at developing domestic productive capacities. So much needs to be done on improving domestic resource mobilization in the WAMZ countries. Some of the required policy actions include enhanced political commitment in designing and implementing national and WAMZ-wide strategies for improving mobilization of domestic resources, development of local capacity in all facets of domestic revenue collection and management. Also important are tax reforms that reduce complications in tax assessment, computation and collection and broaden the tax base to include the hard-to-tax informal sectors, promotion of tax reforms that foster a move away from the current trend of tax exemptions, concessions and holidays. There is also need for harmonization of tax policy and procedures, provision of sufficient incentives for tax collectors, higher level tax bureaucrats and institutions through rewards and punishments for erring tax officials and payers. Policies aimed at promoting domestic investment should be pursued through improvement in the business climate. Each country should undertake a domestic resource assessment with a view to understanding the peculiar nature and structure of their economies and appropriate policy for dealing with them. The West African Monetary Institute (WAMI) should help broker and champion this process.
Fiscal discipline is very important for meeting the macroeconomic convergence criteria in WAMZ countries. The countries should work assiduously to ensure fiscal policy repositioning that would be flexible and help respond to emerging challenges. For countries with high debt such as Ghana, Guinea and Nigeria, where debt sustainability is a real issue, fiscal adjustments that take cognizance of the deteriorating fiscal positions is imperative. The large need for poverty-reducing, infrastructure development and employment creation fiscal expenditures coupled with easier access to financial market and its resultant excessive borrowing should be well balanced to ensure responsible and disciplined fiscal expenditures. Fiscal frameworks and institutions should, therefore, be strengthened to promote monitoring and evaluation of fiscal policies, effects and
F. O. Egwaikhide and K. Ogunleye
121
outcomes. Each country should look inward to know what is best for it given its peculiarities.
Central Bank autonomy is imperative for monetary policy design and implementation. It is autonomy that would empower the monetary authorities to implement monetary policy goals that would cut across all the macroeconomic convergence criteria free from political encumbrances. In WAMZ countries, central banks of most countries are hardly independent, perpetually operating under either the Presidency or the Ministry of Finance. This limits their legal, goal and instrument independence. To illustrate with the case of Nigeria, during the recent global economic and financial crisis, the central bank decided to bail out the banking sector, thereby dousing the negative effects of globalization on the economy. However, the extent to which the central bank could go was limited by its independence. Even when some very important far reaching decisions were taken, they were subjected to serious limitations. WAMZ countries should concentrate on institutional reforms that would help in developing stronger and more independent central banks equipped to perform its macroeconomic management role. Moreover, there is need for fiscal and monetary policy coordination to avoid fiscal dominance that could be inimical to achieving macroeconomic convergence. Fiscal dominance is still a problem in most WAMZ countries and has the potential to weaken the possible positive effects of globalization on macroeconomic convergence. In this case, monetary policy is simply directed at financing fiscal deficit through money creation. Even when such fiscal expenditures are financed through the domestic money and capital market, the higher demand may increase cost of borrowing in the domestic market, thereby inducing interest rates volatility. This would most certainly crowd out the private borrowers. The usual result of such action is inflation, interest rates and exchange rates volatility. One would observe that most WAMZ countries suffer from this syndrome. In most of these economies, fiscal expenditure is driven by the needs for social infrastructure, job creation and poverty reduction. In most cases, neither the available resources are sufficient to finance this expenditures nor is the government credible enough to engage in external borrowings. Thus, money creation through the central bank becomes the only available means of finance. Therefore, WAMZ countries need to create a framework for ensuring that fiscal dominance is contained and does not inundate macroeconomic convergence policy goals. This requires creating a synergy between fiscal and monetary authorities to ensure harmonization of policy goals, prominent among which should be dousing the possible negative effects of globalization on macroeconomic convergence criteria. Again, while WAMI should be the prime mover at the Zone-wide level, each country should establish fiscal-monetary policy coordination units for this purpose.
Vol. 10, No.1 Journal of Monetary and Economic Integration
122
Given the variation in size, level of development and of global integration, stronger
economies such as Nigeria should assist the relatively smaller economies to efficiently
manage the effects of globalization on their economies. This will help promote equity
and shared costs of integration by offering to absorb some of the exogenous shocks
emanating from globalization on the relatively smaller economies. This is the major route
to ensuring viability of the WAMZ countries and improving their resilience in the face of
globalization. WAMI should be more dogged in its mandate to fast-track the
convergence through more innovative strategies and programmes aimed specifically at
leveraging on the benefits of globalization on convergence and mitigating its real and
potential risks.
CONCLUSION
Globalization could be a positive or negative force on WAMZ‘s efforts to achieve
macroeconomic convergence and ultimately monetary integration. Whichever of these
would occur will depend on the nature of each member country and the available
policies for harnessing its real and potential abundant opportunities and mitigating its
negative effects. Thus, understanding the nature of effects is important for management.
This article has elicit our understanding in this respect. It is clear that effects of
globalization on WAMZ countries depends, to a large extent, on the size, level of
development, level of integration and policy environment aimed at managing
developments in macroeconomic variables. On the one hand, foreign capital inflow,
especially in the net oil and mineral exporting and high aid- and remittance-dependent
economies, is a major determinant of exchange rate changes. On the flip side, same large
capital inflows have had deleterious effects on exchange rate appreciation, thus
provoking Dutch disease in these economies. Therefore, there is need for proper
balancing in the management of capital flows so that foreign reserves accumulation is
minimized while avoiding exchange rate overvaluation that has plagued these economies
for a long time. This will help to stimulate international competitiveness of the Zone.
On a general note, there is need for strong political will to pursue monetary integration
objective in the WAMZ countries by making it a top priority. Competitive advantage
should be created as the first step to benefiting from the positive effects of globalization.
This would require more reforms that will make the Zone a hub for trade and foreign
investment. This should take cognizance of the real and potential supply-side bottlenecks
that remain a daunting challenge in the region. Fiscal expenditures should be targeted at
easing the supply-side constraints. Indeed, both local (public and private) and foreign
resources should be directed towards relaxing supply-side and capacity constraints.
Countries with large windfalls from crude and mineral exports should take advantage of
F. O. Egwaikhide and K. Ogunleye
123
the additional resources available to them to achieve this and use the proceeds to
proactively counter external shocks.
Moreover, more resolute efforts must be made to assess existing arrangements for
meeting the convergence criteria, incorporating the possible positive and negative effects
of globalization. Furthermore, efforts are needed to strengthen the existing arrangements
for coordinating macroeconomic policies by reinforcing peer-group surveillance of the
convergence criteria and the national economic policies aimed at achieving these. Focus
should be on fiscal-monetary policy coordination that prevents fiscal or monetary
dominance. The country should work more closely and intensely to harmonize standards,
regulations and policy for achieving set objectives. Lessons should be shared between all
member countries with respect to best practice in managing the effects of globalization
on macroeconomic variables. These concerted efforts will help fast-track the
convergence speed and ultimately deliver a virile and successful second monetary
integration in West Africa.
Vol. 10, No.1 Journal of Monetary and Economic Integration
124
REFERENCES
Ahearne, A. G., Fernald, J. G., Loungani, P. and Schindler, J.W. (2003) ‗China and emerging Asia: comrades or competitors?‘, International Finance Discussion Paper, 2003-789, Washington: Board of Governors of the Federal Reserve System, December. Al Awad, M. and Goodwin, B. K. (1998) ‗Dynamic linkages among real interest rates in international capital markets‘, Journal of Money and Finance, Vol 17, pp. 881-907. Alexander, G., Eun, C., and Janakiramanan, S. (1987) ‗Asset pricing and dual listing on foreign capital markets: a note‘, Journal of Finance, Vol. 42, pp. 151-158. Aizenman, J., Lee, Y. and Rhee, Y., (2007) ‗International reserves management and capital mobility in a volatile world: policy consideration and a case study of Korea‘, Journal of the Japanese and International Economies, Vol. 21, pp. 1–15. Archer, D. and Halliday, J. (1998) ‗Rationale for holding foreign currency reserves‘, Reserve Bank of New Zealand Bulletin, Vol. 61, No. 4, pp. 346–54. Arteta, C., Eichengreen, B. and Wyplosz, C. (2003) ‗When does capital account liberalisation help more than it hurts?‘, In Economic Policy in the International Economy: Essays in Honor of Assaf Razin.In Helpman, E. and E. Sadka (Ed.), Cambridge: Cambridge University Press. Ball, L. M., (2006) ‗Has globalization changed inflation?‘, NBER Working Paper No 12687, November. Barro, R. J. and Sala-i-Martin, X. (1990) ‗World real interest rates‘, NBER Working Paper No 3317, April. Benigno, P. and Faia, E. (2010) ‗Globalization, pass-through and inflation dynamic‘, NBER Working Paper, 15842. Cambridge, MA: National Bureau of Economic Research. Berg, A., Aiyar, S., Hussain, M., Roache, S. K., Mirzoev, T. N., and Mahone, A. (2007) ‗The macroeconomics of scaling up aid: lessons from recent experience‘, IMF Occasional Paper, No. 253, Washington: International Monetary Fund. Blanchard, O. J. and Summers, L. H. (1984) ‗Perspectives on high world real interest rates‘, Brookings Papers on Economic Activity, Vol. 2, pp. 271-324.
F. O. Egwaikhide and K. Ogunleye
125
Borio, C. and Filardo, A. (2007) ‗Globalization and inflation: new cross-country evidence on the global determinants of domestic inflation‘, BIS Working Paper, No. 227, Switzerland: Bank for International Settlement. Chanda, A., (2005) ‗The influence of capital controls on long run growth: where and how much?‖ Journal of Development Economics, Vol. 77, pp. 441–66. Cheung, C., (2009) ‗Are commodity prices useful leading indicators of inflation?‘, Bank of Canada Discussion Paper, 2009-25. Clark, W. C. (2000) ‗Environmental globalization‘, in Nye, Joseph S. and John D. Donahue (eds.), Governance in a Globalizing World. Brookings Institution Press, Washington, D.C.: 86-108. Demirgüç-Kunt, A. and Detragiache, E. (1999) ‗Financial liberalisation and financial fragility‘, in B. Pleskovic and J. E. Stiglitz, eds, Annual World Bank Conference on Development Economics 1998, (Washington: World Bank). Diouf, M., (2007) ‗Modeling inflation for Mali‘, IMF Working Paper, 07/295. Washington: International Monetary Fund. Domowitz, I., Glen, J. and Madhavan, A. (1998) ‗International cross-listing and order flow migration: evidence from an emerging market‘, Journal of Finance, Vol. 53, No.6, pp. 2001-2027. Domowitz, I., Glen, J. and Madhavan, A. (2001) ‗Liquidity, volatility and equity trading costs across countries and over time‘, International Finance, Vol. 4, No. 2, pp. 221-255. ECA, (2002) ‗Defining priorities for regional integration‘, Third African Development Forum. United Nations Economic Commission for Africa, Addis Ababa, Ethiopia. Edison, H., Levine, R. Ricci, L. and Sløk, T. (2002) ‗International financial integration and economic growth‘, Journal of International Monetary and Finance, Vol. 21, No. 6, pp. 749–76. Elbadawi, I. A., Kaltani, L. and Schmidt-Hebbel, K. (2008) ‗Foreign aid, the real exchange rate, and economic growth in the aftermath of civil wars‘, The World Bank Economic Review, Vol. 22, No. 1, pp. 113 – 140. Elhiraika, A. and Ndikumana, L. (2007) ‗Reserves accumulation in african countries: sources, motivations and effects‘, Economic Department Working Paper, University of Massachusetts, pp. 1–27.
Vol. 10, No.1 Journal of Monetary and Economic Integration
126
Fischer, S., (1997) ‗Capital account liberalization and the role of the IMF‘, speech at the IMF seminar on Asia and the IMF, Hong Kong SAR, September 19. Fischer, S., (2001) ‗Exchange rate regimes: is the bipolar view correct?‘, Journal of Economic Perspectives, Vol. 15, pp. 3–24. Gosselin, M. and P. Nicolas, 2005: ―An Empirical Analysis of Foreign Exchange Reserves in Emerging Asia‖, Bank of Canada Working Paper, No. 2005–38, pp. 4–6. Grilli, V. and Milesi-Ferretti, G. M. (1995) ‗Economic effects and structural determinants of capital controls‘, IMF Staff Papers, Vol. 42, No. 3, pp. 517–51. Hargis, K., (2000) ‗International cross-listing and stock market development in emerging economies‘, International Review of Economics and Finance, Vol. 9, No. 2, pp. 101-122. Hargis, K., and Ramanlal, P. (1998) ‗When does internationalization enhance the development of domestic stock markets?‘ Journal of Financial Intermediation, Vol. 7, pp. 263-292. Heller, R. H., (1966) ‗Optimal international reserves‘, Economic Journal, Vol. 76, pp. 296–311. Hoberg, G., (2000) ‗Canada and North America integration‘, Canadian Public Policy/Analyse de Politiques 26 Supplement (August), S35-S50. Hofmann, B., (2006) ‗Do monetary indicators (still) predict euro area inflation?‘, Dutsche Bundes Bank Discussion Paper, Series 1: Economic Studies, No. 18. IMF, (2006) ‗World economic outlook: globalization and inflation‘, April. Washington DC: International Monetary Fund. Iyoha, M.A., (1976) ‗Demand for international reserves in less developed countries: a distributed lag specification‘, The Review of Economics and Statistics, Vol. 58, No. 3, pp. 351–55. Karolyi, A., (1996) ‗What Happens to stock that list shares abroad?‘, Mimeo, University of Western Ontario. Karolyi, A., (2002) ‗The role of ADRS in the development and integration of emerging equity markets‘, Mimeo.
F. O. Egwaikhide and K. Ogunleye
127
Keohane, R. O. and Nye, J. S., (2000) ‗Introduction‘, in Governance in a Globalizing World, Nye, J. S. and J. D. Donahue (eds.), pp. 1 – 44, Washington, D.C.: Brookings Institution Press. Khan, M. S., and Schimmelpfennig, A. (2006) ‗Inflation in Pakistan: money or wheat?‘, IMF Working Paper 06/60. Washington: International Monetary Fund. Klein, M. and Olivei, G. (2006) ‗Capital account liberalisation, financial depth, and economic growth‘, Working Paper, Tufts University. Landell-Mills, J. M., (1989) ‗The Demand for International Reserves and their Opportunity Cost‘, International Monetary Fund Staff Papers, Vol. 36, No. 3, pp. 107–10. Lane, P. R. and Burke, D. (2001) ‗The empirics of foreign reserves‘, Open Economies Review, Vol. 12, No. 3, pp. 107–10. Lane, P. and Milesi-Ferretti, G. M. (2006) ‗The external wealth of nations mark ii: revised and extended estimates of external assets and liabilities, 1970-2004‘, IMF Working Paper, 06/69 (March). Levine, R. and Schmukler, S. (2003) ‗Migration, spillovers, and trade diversion: the impact of internationalization on stock market liquidity‘, NBER Working Paper 9614. Li, Y. and Rowe, F. (2007) ‗Aid Inflows and the Real Effective Exchange Rate in Tanzania‘, World Bank Policy Research Working Paper, No. 4456. Marshall, M. G., (2010) ‗Major episodes of political violence (MEPV) and conflict regions, 1946-2008‘, Center for Systemic Peace. Mendoza, R.U., (2004) ‗International reserve-holding in the developing world: self insurance on a crisis-prone era?‘, Emerging Markets Review, Vol. 5, pp. 61–82. Moel, A., 2001: ―The Role of American Depositary Receipts in the Development of Emerging Markets.‖ Economia, 2, No.1, pp. 209-273. Norris, P. (2000) ‗Global governance and cosmopolitan citizens‘, in Governance in a Globalizing World Nye, J. S. and J. D. Donahue (eds.), Brookings Institution Press, Washington, D.C.: pp. 155-177. Ogun, O. (1995) ‗Real exchange rate movements and export growth: Nigeria, 1960 – 1999‘, African Economic Research Consortium Research Paper, 82.
Vol. 10, No.1 Journal of Monetary and Economic Integration
128
Ogunleye, E. K. (2008a) ‗Financial globalisation and macroeconomic performance in sub-Sahara Africa: evidence from Nigeria‖, African Journal of Economic Policy, Vol 15, No. 1.
Ogunleye, E. K. (2008b) ‗Natural resource abundance in Nigeria: from dependence to development‘, Resources Policy, Vol. 33, No. 3, pp. 168 – 174.
Ogunleye, E. K. and Fashina, D. A. (2010) ‗The imperatives for domestic resource mobilization for sustained post-crisis recovery and growth in sub-Saharan Africa‘, Paper presented at the African Economic Conference 2010, Tunis, Tunisia, 27 – 29, October.
Olokoyo, F. O., Osabuohien, E. S. and Salami, O. A. (2009) ‗Econometric Analysis of Foreign Reserves and Some Macroeconomic Variables in Nigeria (1970–2007)‘, African Development Review, Vol. 21, No. 3, pp. 454–475. Onimode, B. (1992) ‗African cooperation and regional security‘, in Africa: Rise to Challenge by Obasanjo, O. and F. Moshi (Eds), Africa Leadership Forum, Abeokuta: 153-165. Orr, A., Edey, M and Kennedy, M. (1995) ‗The determinants of real long-term interest rates: 17 country pooled-time-series evidence‘, OECD Economics Department Working Papers, No 155. Osabuohien, E. and Egwakhe, A. (2008) ‗External reserves and the Nigerian economy: the dual folded debate‘, African Journal of Business and Economic Research, Vol. 3, No. 2, pp. 28–41. Pain, D and Thomas, R. (1997) ‗Real interest rate linkages: testing for common trends and cycles‘, Bank of England Working Paper, No 65. Quinn, D. (1997) ‗The Correlates of Changes in International Financial Regulation‘, American Political Science Review, Vol. 91, pp. 531–51. Rajan, R., and Subramanian, A. (2005) ‗What undermines aid‘s impact on growth?‖ NBER Working Paper 11657. October. Rodrik, D. (1998) ‗Who needs capital-account convertibility?‖ Essays in International Finance, No. 207 , Princeton, New Jersey: Princeton University. Romer, D. (1993) ‗Openness and inflation: theory and evidence‘, The Quarterly Journal of Economics, Vol. 107, pp. 869–903.
F. O. Egwaikhide and K. Ogunleye
129
Saadi-Sedik, T. and Petri, M. (2006) ―To smooth or not to smooth—the impact of grants and remittances on the equilibrium real exchange rate in Jordan‘, International Monetary Fund Working Paper, No. WP/06/257, Washington: International Monetary Fund. Sackey. H. A. (2001) ‗External Aid inflows and the real exchange rate in Ghana‘, AERC Research Paper, 110, AERC, Nairobi. Sbordone, A. M. (2008) ‗Globalization and inflation dynamics: the impact of increased competition‖, Federal Reserve Bank of New York Staff Reports No. 324, April. Schmukler, S. and Vesperoni, E. (2003) ‗Financial globalisation and debt maturity in emerging economies‘, IMF Working Paper 01/95, Washington: International Monetary Fund. Sekine, T. (2001) ‗Modeling and forecasting inflation in Japan‘, IMF Working Paper 01/82, Washington: International Monetary Fund. Singh, R. J., Haacker, M., and Lee, K. (2008) ‗determinants and macroeconomic impact of remittances in sub-Saharan Africa,‖ IMF Working Paper, forthcoming. Smith, K., and Sofianos, G. (1997) ‗The impact of a NYSE listing on the global trading of non-US stocks‘, NYSE Working Paper 97-02. Stiglitz, J. (2006) ‗Making globalization work‘, New York: W.W. Norton & Co. Tytell, I. and Wei, S. J. (2004) ‗Does financial globalization induce better macroeconomic policies?‘, IMF Working Paper 04/84. Washington: International Monetary Fund. Upper, C. and Worms, A. (2003) ‗Real long-term interest rates and monetary policy: a cross -country perspective. BIS Papers No. 19, pp. 234-257. Switzerland: Bank for International Settlements. WAMZ Report (2003) ‗Macroeconomic developments and convergence report for the first half of 2003‘, Accra, Ghana: West African Monetary Institute (WAMI). Weintraub, S. (1994) ‗NAFTA: What Comes Next‘, Washington, DC: Center for Strategic and International Studies. Wu, J-L, (1999) ‗A re-examination of the exchange rate-interest differential relationship: evidence from Germany and Japan‘, Journal of International Money and Finance, Vol. 18, pp. 319-36.
Vol. 10, No.1 Journal of Monetary and Economic Integration
130
Wu, T. (2006) ‗Globalization‘s effect on interest rates and the yield curve‘, Economic Letter, Vol. 1, No. 9, Federal Reserve Bank of Dallas. Yellen, J. (2006) ‗Speech at the Euro and the Dollar in a Globalized Economy Conference‘, May 27, Federal Reserve Bank of San Francisco. Yeyati, E. L. 2008: ‗The cost of reserve‘, Economic Letters, Vol. 100, pp. 39–42.