Macroeconomic Policy Efficiency in the ECOWAS and EAC Countries: Does Financial Sector Development Matter?
Macroeconomic Policy Efficiency in the ECOWAS and EAC Countries: Does Financial Sector Development Matter?

Summary/Abstract: The study examined the extent to which financial sector development and macroeconomic performance spurs the policy action efficiency in the ECOWAS and EAC countries of SSA region between the period of 1980 and 2022. The System Generalized Method of Moments and Pedroni’s cointegration techniques were employed and the study found an existence of long run relationship and cointegration among the variables in the study. The study revealed that the financial sector development and macroeconomic performance both had the negative hypothesized coefficients signs, and both variables were found statistically and negatively significant, implying a negative correlation among financial development, macroeconomic performance and monetary policy efficiency. This result suggested that a deeper financial development and improved macroeconomic performance both enhanced and increased the policy efficiency in ECOWAS and EAC countries. The study found the efficiency of monetary policy to be mixed among ECOWAS and EAC countries, implying that while a policy efficiency has improved more in ECOWAS countries, it has rather improved less in the EAC countries. This study, therefore, recommends the need for EAC and ECOWAS monetary authority to put in place adequate policies and strategic reforms that would enhance the financial development and financial systems in the EAC and ECOWAS countries, since both variables play largely vital roles in enhancing, increasing and improving of policy efficiency in developed and developing economies.

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