Understanding the Optimum Thresholds for the Macroeconomic Convergence Criteria in Africa’s Regional Economic Communities: Evidence from SADC, COMESA and ECCAS

Abstract

This article attempts to determine the optimal levels of four convergence criteria (inflation, budget balance as a percentage of GDP, public debt as a percentage of GDP and international reserves in months of imports), in order to verify whether the optimal levels found converge with the convergence objectives defined for each of these indicators at the level of each REC. To achieve this, the empirical approach applied was inspired by the threshold model developed by Hansen (1999) . The results of this empirical investigation provide the following interesting lessons: 1) the convergence criteria as set out in the convergence pact of these 3 RECs in no way reflect the reality of the different economies of the zone in relation to the optimal levels resulting from the estimates, and 2) this situation restricts the capacity of the States to exploit the additional margins conferred by the optimal levels resulting from our calculations. It is therefore essential to promote the endogenization of convergence criteria in order to accelerate the convergence process and create optimal currency areas at the level of each REC. This can only be achieved by taking into account the optimum levels derived from Member States’ data when determining the convergence criteria for each REC.