Monetary Integration, Single Currency Zone and Economic Growth of Sub-Saharan African Countries

Abstract

This study examines the impact of monetary integration in economic growth of Sub-Saharan African (SSA) countries for the period 1999 to 2021, using Panel Autoregressive Distributed Lag Model (PARDL). Nine SSA countries from the four regions of SSA were selected based on high GDP growth rate in 2021. The countries are; Nigeria, South Africa, Kenya, Angola, Democratic Republic of Congo, Ethiopia, Cote d’Ivoire and Ghana. The annual panel data were collected from World Bank database on the variables such as Gross Domestic Product growth rate (GDPG), Inflation Rates (INFR), Real Exchange Rates (REXR) and Fiscal Deficit (FDEF). The panel unit root and Johansen Fisher co integration tests were conducted on all the variables. While the variables exert mixed order of integration, there exists long run relationship amongst the variables. The result of the PARDL reveals that inflation rate has positive and insignificant impact on GDP growth rate in the long run but negative and insignificant impact in the short run. The result further shows that both in the long run and short run, real exchange rate has negative and insignificant impact on economic growth of SSA countries. The fiscal deficit result shows a significant and positive impact on GDP growth rate in SSA countries both in the long run and short run. The study therefore recommends that government should formulate policy that would strengthen local currencies against foreign currencies, probably by fixing the exchange rates. If this is done, inflation rate will be tamed through various productions of goods and services at reduced costs.