Financial Integration and Business Cycle Synchronization in Sub-Saharan Africa

Abstract

This contribution studies the relationship between financial integration and the correlation of business cycles in sub-Saharan African countries. We consider asymmetric dynamics during expansions and recessions and desynchronized fluctuations that capture the costs and benefits of financial integration. Our study suggests that the effect of financial integration is heterogeneous across groups of countries. In the CEMAC, we find a positive relationship between financial integration and business cycles, while for WAEMU and SADC, financial integration increases the dephasing of business cycles. Further, reserve pooling does not play a substantial role in smoothing idiosyncratic shocks.