Prospects of African Integration in Light of the Theory of Optimum Currency Areas

Abstract

This paper empirically addresses the question of the prospects of integration among African states in light of Mundell's theory of optimum currency areas. The symmetry and asymmetry of shocks affecting African countries is measured by a structural vector autoregression decomposition method developed by Blan chard and Quah [1989] and Bayoumi and Eichengreen [1992]. The results indicate that the scope for such integration is quite limited. Asymmetry of supply shocks prevails throughout Africa and especially in its Eastern part. On the other hand, we found that there are groups of countries in Northern Africa, Western Africa and Southern Africa which share symmetric demand shocks.