Assessing Regional Integration in Africa III

Towards Monetary and Financial Integration in Africa

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This report finds that although there are some successes, African countries are still experiencing enormous difficulties in achieving the macroeconomic convergence criteria set by their RECs, such as targets on inflation, debt-to-GDP ratio, and deficit-to-GDP ratio. The assessment also indicates that despite some financial developments, African financial market activities remain shallow, with capital markets characterized by low capitalization and liquidity. The report also provides policymakers with recommendations on how to deepen monetary and financial integration on the continent and create an enabling macroeconomic environment for the continent.



Theoretical perspectives of financial development and financial integration

The economic literature posits that a well-functioning economy needs a financial system that moves funds from people who save to people who have productive investment opportunities. In other words, a sound financial system acts as a conduit for sustainable economic growth. The link between financial development and growth was first demonstrated in the literature by Walter Bagehot (1873) and John Hicks (1969), who pointed out that industrialization of England was possible because of the use of the financial system to mobilize productive financial capital.


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