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Basic Infrastructure, Growth and Convergence in WAEMU

Be´ke´ Tite Ehuitche´

Abstract The objective of this study is to analyze the role played by basic infrastructure in the growth and convergence of the economies of the West African Economic and Monetary Union (WAEMU). After a description of the dynamics of the basic infrastructure of WAEMU and a literature review on theories of integration, we will discuss the model of convergence used for this analysis. Data for this study consists of panel data for the eight member countries of WAEMU gathered between 1980 and 2012. Statistical data was retrieved from the World Bank. The conditional convergence model is estimated by GMM in dynamic panel of Arellano and Bond. The results show a phenomenon of conditional convergence in the Union. Moreover, they demonstrate that an improvement in economic and social infrastructure in the region would result from significant gains in per capita income growth.

Keywords Infrastructure • Convergence • Growth • Dynamic panel • Economic integration

JEL Classification O43 • O47 • C23

1 Introduction

Infrastructure development is a key driver for progress across the African continent and a critical facilitator of productivity and sustainable economic growth (Commission for Africa 2008). Accelerating integration and growth in Africa requires strengthening of infrastructure services (Guillaumont et al. 2012). NEPAD (New Partnership for Africa's Development), for example, under the aegis of the African Union, focuses largely on regional programs designed to address infrastructure deficit by better integrating transportation networks, energy, and ICT (Information and Communication Technologies).

WAEMU (The West African Economic and Monetary Union) is one of the most striking regional initiatives on strengthening infrastructure. The primary purpose of the Regional Economic Programme (REP) of WAEMU is to accelerate growth and reduce poverty through the implementation of regional integration projects and economic infrastructure development. Priority is given to projects related to electric power, transportation infrastructure, and ICT.

The Regional Economic Programme, designed for a period of 5 years (2006– 2010), included 63 projects of integration. Member States of the Union have viewed this programme as a crucial investment in the economic development of the region.

The vision of this Regional Programme is to contribute to the expansion of the integration process in order to stimulate sustainable and pro-poor growth. To this end, five key strategic areas were identified, namely: (i) the strengthening of economic governance, (ii) the development of economic infrastructure (roads, energy infrastructure, and telecommunication infrastructure) to facilitate the movement of people, goods and services, and improve interconnection across borders,

(iii) the construction of a regional production system, (iv) the development of human resource (v) the establishment of partnerships for resource mobilization.

Among these strategies, the development of economic infrastructure has been identified as a priority on the basis of its impact on integration and its strong contribution to the achievement of the Union's development objectives. According to WAEMU, the choice to invest in basic infrastructure is relevant in that it is expected to accelerate growth through the emergence of a network of small and medium enterprises and the increase in regional exchanges (WAEMU 2006). WAEMU has prioritized basic infrastructure by allocating more than 70 % of its resources to development (See Table 1).

However, regional infrastructure development could lead to the spatial concentration of economic activities in relatively advanced countries of the Union. In this context, Ivory Coast and Senegal, which have a historical advantage over other WAEMU countries, could experience rapid growth with a subsequent increase in disparities between countries. The arguments in favor of this view are similar to those of traditional trade and integration theories that suggest economic unions between poor countries lead to inequalities between relatively the most developed countries in the union and the least developed countries (Venables 2000).

Table 1 Regional economic program of WAEMU (2006–2010)

Cost (million F CFA)

%

Axis 1: Governance and economic integration

58,212

1

Axis 2: Economic infrastructure development

4,988,754

87

Axis 3: Construction of an integrated production system

635,102

11

Axis 4: Human resources development

77,980

1

Axis 5: Resources mobilization

3,000

Global cost

5,763,048

100

Source: WAEMU (2006)

On the other hand, several authors based their views on the positive externalities associated with infrastructure, and have reconsidered the question of economic integration. Indeed, investments in basic infrastructure are essential to the competitiveness of the private sector and critical for growth and integration among developing countries (Holtz-Eakin and Schwartz 1995).

So there is a controversy over the role of infrastructure in the process of economic integration. Do infrastructure investments contribute to the phenomenon of convergence or divergence between WAEMU countries? How do we improve the contribution of infrastructure to the growth of GDP per capita in WAEMU?

 
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