TITLE:
Understanding the Optimum Thresholds for the Macroeconomic Convergence Criteria in Africa’s Regional Economic Communities: Evidence from SADC, COMESA and ECCAS
AUTHORS:
William Pambu Pambu
KEYWORDS:
SADC, COMESA, ECCAS, Criteria Endogenization
JOURNAL NAME:
Modern Economy,
Vol.14 No.9,
September
8,
2023
ABSTRACT: This article attempts to determine the optimal levels of four convergence
criteria (inflation, budget balance as a percentage of GDP, public debt as a
percentage of GDP and international reserves in months of imports), in order to
verify whether the optimal levels found converge with the convergence
objectives defined for each of these indicators at the level of each REC. To
achieve this, the empirical approach applied was inspired by the threshold
model developed by Hansen (1999). The results of this empirical investigation
provide the following interesting lessons: 1) the convergence criteria as set
out in the convergence pact of these 3 RECs in no way reflect the reality of
the different economies of the zone in relation to the optimal levels resulting
from the estimates, and 2) this situation restricts the capacity of the States
to exploit the additional margins conferred by the optimal levels resulting
from our calculations. It is therefore essential to promote the endogenization of
convergence criteria in order to accelerate the convergence process and create
optimal currency areas at the level of each REC. This can only be achieved by
taking into account the optimum levels derived from Member States’ data when
determining the convergence criteria for each REC.