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2 Objectives of the Study

The overall objective of this study is to analyze the relationship between infrastructure services, growth, and convergence in WAEMU.

Specific objectives are:

– To identify growth factors within WAEMU;

– To analyze the dynamics of convergence between countries;

– To assess the impact of infrastructure services on growth and convergence in the Union.

3 Literature Review

The first literature regarding optimal monetary unions dates back to the 1960s. However, literature from this time period brought to light certain issues, primarily concerning the European economic and monetary union and the economic and monetary union of the Franc zone in West and Central Africa (UEMOA and CEMAC). For more than two decades, the analysis of the process of economic convergence served as the subject of a lot of work. This literature is central to the debate on integration.

The origin of the current discussion involves the notion of absolute convergence, the idea that national incomes per capita converge toward each other in the longterm, regardless of the initial conditions. However, given the importance and the role of countries' structural characteristics in determining long-term equilibrium, the assumption of absolute convergence was rejected by econometric regressions based on cross-sectional data (Barro 1991) and by changes in the distribution of income between countries (Quah 1996).

Thus, as noted by Barro (1991), Mankiw et al. (1992) and Barro and Sala-IMartin (1991), the neoclassical growth model implies conditional rather than absolute convergence, so that the rejection of the hypothesis of absolute convergence does not necessarily imply the rejection of neoclassical growth model.

The hypothesis of conditional convergence suggests that among all similar countries, in terms of preference, technology, population growth, public policy, etc., the growth rate is a decreasing function of the level of output per head. As a result, per capita incomes, in similar countries, converge to the same long-term level regardless of their initial position.

Following the work of Barro and Sala-I-Martin (1991), Ondo-Ossa (1999) confirmed the robustness of the hypothesis of conditional convergence. In fact, results have shown a convergence in per capita GDP in the long-run by using the method of ordinary least squares in Franc Zone member-countries.

The evaluation of the two hypotheses (absolute convergence and conditional convergence) is therefore intended to examine the plausibility of the existence of a long-term equilibrium and global stability rather than the existence of multiple, stable equilibria.

Most recently, the work of Berthelemy and Varoudakis (1996) and Berthelemy (2006) confirmed the multiplicity of growth regimes. The accumulation of overarching factors (demographics, savings, and human capital accumulation behaviors) and aspects related to political institutions, could appear or influence different stages of economic development, and thus we have “multiple equilibria”. These contributions are too few compared to all the work trying to test the convergence hypothesis.

In summary, work on economic convergence rejected the hypothesis of absolute convergence in favor of the conditional convergence hypothesis.

 
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