Main Article Content

Abstract

This study examines the dynamic relationship between growth, inflation, and real money balances in the Economic Community of West African States (ECOWAS). We apply a new approach by extending comprehensive econometric methods so that monetary dynamics can be better understood in the West African sub-region. The study obtained data from the World Bank from 2006 to 2021 and covered 15 countries. For robustness checks, we estimate dynamic ordinary least squares and fully modified ordinary least squares. These findings reveal the existence of a significant cointegration relationship between growth, real balance, and inflation. Furthermore, this study found that real balance has a positive long-run dynamic impact on growth. Likewise, there is a short-run positive impact of money and inflation on growth. We contribute to the literature on the money-growth nexus by focusing on West Africa, which faces macroeconomic vulnerabilities due to structural imbalances. These findings have policy implications for central banks and the Fiscal Agency. Central Banks must collaborate to reduce money in the informal sector, while Fiscal Authorities must control inflation collectively.

Keywords

growth inflation real balances broad money ECOWAS

Article Details

How to Cite
Muhammad, M., Baita, A. J., & Ansari, S. (2024). Understanding the Dynamic Linkages: Inflation, Real Balances, and Their Impact on Economic Growth in ECOWAS. Jurnal Ekonomi Pembangunan, 22(1), 65–76. https://doi.org/10.29259/jep.v22i1.23106

References

  1. Ajao, K, & Adenomon, M. O. (2023). Modelling short-run dynamics of macroeconomic variables on GDP In ECOWAS countries using panel vector autoregression model. Asian Journal of Probability and Statistics, 22(4), 1–13. https://doi.org/10.9734/AJPAS/2023/v22i4488
  2. Akalpler, E., & Duhok, D. (2018). Does monetary policy affect economic growth: evidence from Malaysia. Journal of Economic and Administrative Sciences, 34(1), 2–20. https://doi.org/10.1108/jeas-03-2017-0013
  3. Asongu, S. (2016). New empirics of monetary policy dynamics: Evidence from the CFA franc zones. African Journal of Economic and Management Studies, 7(2), 164–204. https://doi.org/10.1108/AJEMS-11-2012-0079
  4. Baita, A. J., Abdullahi, S. G., & Muhammad, M. (2023). Fiscal Policy and Financial Depth in Nigeria: An Application of Threshold Regression Modeling. International Journal of Finance, Economics and Business, 2(4), 269-279. https://doi.org/10.56225/ijfeb.v2i4.215
  5. Buthelezi, E. M. (2023). Impact of money supply in different states of inflation and economic growth in South Africa. Economies, 11(2), 64. https://doi.org/10.3390/economies11020064
  6. Chaitip, P., Chokethaworn, K., Chaiboonsri, C., & Khounkhalax, M. (2015). Money Supply Influencing on Economic Growth-wide Phenomena of AEC Open Region. Procedia Economics and Finance, 24(July), 108–115. https://doi.org/10.1016/s2212-5671(15)00626-7
  7. Dada, M. A., Posu, S. M. A., Okungbowa, O. G., & Abalaba, B. P. (2021). The Nexus of Government Spending, Price, Output, and Money in the ECOWAS Sub-Region: Evidence from Panel ARDL and Causality Approach. Economics and Business, 35(1), 71–90. https://doi.org/10.2478/eb-2021-0005
  8. Doan Van, D. (2020). Money supply and inflation impact on economic growth. Journal of Financial Economic Policy, 12(1), 121–136. https://doi.org/10.1108/JFEP-10-2018-0152
  9. Duodu, E., Baidoo, S. T., Yusif, H., & Frimpong, P. B. (2022). Money supply, budget deficit and inflation dynamics in Ghana: An empirical investigation. Cogent Business and Management, 9(1), 2043810. https://doi.org/10.1080/23311975.2022.2043810
  10. Effiom, L., & Ubi, P. (2019). Fiscal Deficit, Current Account Balance and Economic Performance: Evidence from ECOWAS Countries. The Dynamics of Economic Development in Africa, 65-88.
  11. Ekpo, A. H. (2020). Financing Development Without Tears: An Empirical Investigation on Sub-saharan Africa. Financing Africa’s Development. Paths to Sustainable Economic Growth, 15–31. https://doi.org/10.1007/978-3-030-46482-0_2
  12. Ekpo, U. N. (2014). The Nexus of Macroeconomic Policy, Investment and Economic Growth in Nigeria. Journal of Economics and Finance, India, 3(2), 12-22.
  13. Fontana, G., & Kamara, M. S. H. (2023). Towards monetary union in the Economic Community of West African States (ECOWAS): Better policy harmonisation and greater intra-trade are needed. Journal of Policy Modeling, 45(1), 58-73. https://doi.org/10.1016/j.jpolmod.2023.02.004
  14. Henry, E. A. (2020). Impact of monetary policy on inflation rate in Nigeria: Vector Autoregressive Analysis. Bullion, 44(4), 6. https://dc.cbn.gov.ng/bullion/vol44/iss4/6
  15. Ibrahim, M., & Alagidede, P. (2018). Effect of financial development on economic growth in sub-Saharan Africa. Journal of Policy Modeling, 40(6), 1104–1125.
  16. Ilyas, M., Song, L., Galadima, M. D., Hussain, M. N., & Sattar, A. (2022). Shocks effects of inflation, money supply, and exchange rate on the West African Monetary Zone (WAMZ): Asymmetric SVAR modelling. Journal of International Trade and Economic Development, 31(2), 255–276. https://doi.org/10.1080/09638199.2021.1965191
  17. Im, K. S., & Pesaran, M. H. (2003). On the panel unit root tests using nonlinear instrumental variables (No. 0347).
  18. Kao, C. (1999). Spurious Regression and Residual-based Tests for Cointegration in Panel Data. Journal of Econometrics, 90, 1–44. https://doi.org/10.1016/S0304-4076(98)00023-2
  19. Kremer, S., Bick, A., & Nautz, D. (2013). Inflation and growth: new evidence from a dynamic panel threshold analysis. Empirical Economics, 44, 861-878. https://doi.org/10.1007/s00181-012-0553-9
  20. Levin, A., Lin, C. F., & Chu. C. S. J. (2002). Unit Root Tests in Panel Data: Asymptotic and Finite-sample Properties. Journal of Econometrics, 108(1), 1–24. https://doi.org/10.1016/S0304-4076(01)00098-7
  21. Long, P. D., Hien, B. Q., & Ngoc, P. T. B. (2021). Money supply, inflation and output: an empirically comparative analysis for Vietnam and China. Asian Journal of Economics and Banking, 502. https://doi.org/10.1108/ajeb-03-2021-0040
  22. M. Hashem Pesaran, Yongcheol Shin, R. J. S. (2001). Bounds testing approaches to the analysis of level relationships. Journal of Applied Econometrics, 16(3), 289–326. https://doi.org/10.1002/jae.616
  23. Madurapperuma, W. (2023). Money supply, inflation and economic growth of Sri Lanka: co-integration and causality analysis. Journal of Money and Business, 3(2), 227–236. https://doi.org/10.1108/jmb-08-2022-0039
  24. Odhiambo, S. A. (2017). Money, inflation and output: Understanding the cornerstones of a monetary union in East Africa community. European Scientific Journal, 13(31), 503–520.
  25. Olamide, E. G. and Maredza, A. (2019). A dynamic regression panel approach to the determinants of monetary policy and economic growth: The SADC experience. African Journal of Economic and Management Studies, 10(3), 385–399. https://doi.org/10.1108/AJEMS-10-2018-0302
  26. Onyebuchi Obi, K., Uzodigwe, A. A., & Ajana, A. (2015). Dynamic impact of money supply on Inflation: Evidence from ECOWAS Member States. IOSR Journal of Economics and Finance, 6(June), 10–17. https://doi.org/10.9790/5933-06331017
  27. Orji, A., Ekeocha, D. O., Ogbuabor, J. E., & Anthony-Orji, O. I. (2022). Monetary policy channels, sectoral outputs and sustainable growth in the ECOWAS region: a rigorous analysis and implications for policy. EconomiA, 23(1), 105–122. https://doi.org/10.1108/econ-06-2022-0048
  28. Ozekhome, H. O. (2017). Does money supply growth cause inflation in the West African Monetary Zone? West African Journal of Monetary and Economic Integretion, 17(2), 57–80. https://hdl.handle.net/10419/264245
  29. Pedroni, P. (2004). Panel cointegration: Asymptotic and finite sample properties of pooled time series tests with an application to the PPP hypothesis. Cambridge University Press, 20(3), 597–625. https://doi.org/10.1017/S0266466604203073
  30. Phiri, A. (2020). Endogenous monetary approach to optimal inflation–growth nexus in Swaziland. African Journal of Economic and Management Studies, 11(4), 559–571. https://doi.org/10.1108/AJEMS-07-2018-0217
  31. Piergallini, A. (2006). Real balance effects and monetary policy. Economic Inquiry, 44(3), 497-511.
  32. Sanya, O., & Tosin, F. O. (2022). The dynamics of monetary policy and output growth in Economic Community of West African States (ECOWAS). Iranian Economic Review, 26(2), 255–268. https://doi.org/10.22059/ier.2022.88163
  33. Shahram Amini, Michael S. Delgado, Daniel J. Henderson, C. F. P. (2012). Fixed vs random: The Hausman test four decades later. Advances in Econometrics, 29, 479–513. https://doi.org/10.1108/S0731-9053(2012)0000029021
  34. Sylla, M. (2022). West African economy. International Monetary Fund.
  35. Thaddeus, K. J., Ngong, C. A., Nebong, N. M., Akume, A. D., Eleazar, J. U., & Onwumere, J. U. J. (2024). Selected macroeconomic determinants and economic growth in Cameroon (1970–2018) “dead or alive” an ARDL approach. Journal of Business and Socio-Economic Development, 4(1), 1–19. https://doi.org/10.1108/jbsed-05-2021-0061
  36. Tijani, J. O. (2014). Empirical analysis of balance of payment adjustment mechanisms: Monetary channel in Nigeria, 1970–2010. Mediterranean Journal of Social Sciences, 5(14), 67-76.
  37. Yaya, C. H. A. M. (2023). Inflation and Public Debt Reversals in the West African Monetary Zone (WAMZ) Economies. Journal of Applied Economic Sciences, 18(2 (80)), 84-91.
  38. Westerlund, J. (2007). Testing for error correction in panel data. Oxford Bulletin of Economics and Statistics, 69(6), 709–748. https://doi.org/10.1111/j.1468-0084.2007.00477.x

Similar Articles

1 2 > >> 

You may also start an advanced similarity search for this article.