Regional Spillovers in Sub-Saharan Africa: Exploring Different Channels

Spillover Notes, August 1, 2018

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Canonical URL: Regional Spillovers in Sub-Saharan Africa: Exploring Different Channels

Authors: Francisco Arizala, Matthieu Bellon, Margaux MacDonald, Montfort Mlachila, Mustafa Yenice
Published: August 1, 2018
Series: Spillover Notes
DOI: https://doi.org/10.5089/9781484367148.062

After close to two decades of strong economic activity, overall growth in sub-Saharan Africa decelerated markedly in 2015–16 as the largest economies experienced negative or flat growth.
Regional growth started recovering in 2017.
Central question: how trends in the economies stuck in low gear will spill over to the countries that have maintained robust growth.
Focus: identifying growth spillover channels most likely to transmit trends across borders.

Trade (with emphasis on intraregional trade and regional trade spillovers).
Banking (banking channels assessed as less important historically but a continuing risk).
Financial markets (contagion across asset markets).
Remittances (intraregional remittance flows highlighted as an important channel).
Investment (corporate investment linkages).
Fiscal (revenue-sharing arrangements in fiscal unions, commodity-pricing policies).
Security (forced migration and security-related spillovers).

Intraregional trade and remittance flows are an important channel for growth spillovers.
Banking channels are less important but will remain a risk going forward.
Other important spillover channels documented: financial markets contagion, revenue-sharing arrangements in fiscal unions, commodity-pricing policies, corporate investment, and forced migration.
The level of interdependence among sub-Saharan countries is higher than is generally assumed.
Consequence: a need for additional emphasis on regional surveillance and spillover analysis, alongside traditional bilateral surveillance.

Strengthen regional surveillance and tailored spillover analysis to account for higher-than-assumed interdependence.
Monitor intraregional trade and remittance flows as primary conduits of growth transmission.
Maintain vigilance over banking-sector linkages given potential future risks.
Consider implications of fiscal arrangements (revenue-sharing) and commodity-pricing policies on regional stability.
Account for financial markets contagion and forced migration in regional risk assessments.