Document Type
Article
Publication Date
2025
DOI
10.1093/jae/ejaf015
Publication Title
Journal of African Economies
Volume
Advance online publication
Pages
1-17
Abstract
Numerous currency unions have been proposed in Africa over the past 50 years, but none have succeeded. This paper asserts ethnic favouritism is a crucial yet often overlooked feature that strongly influences an African government’s willingness to join a currency union. We use a Barro and Gordon (1983) style model that incorporates fiscal dominance, political business cycles and ethnic favouritism to assess the benefits and costs to African households and governments of joining a currency union. Our results show that ethnic alignment between the head of state and central bank governor amplifies fiscal dominance, which reduces an African government’s desire to surrender monetary autonomy. A currency union is more beneficial to African households if the common central bank is free from political influence of its member countries and more beneficial to African governments if fiscal dominance persists. Both African households and governments will gain utility from joining a monetary union if the trade benefits are strong enough to overcome the costs of belonging to the union. Given the prevalence of fiscal dominance and modest trade among neighbouring countries, it is easy to understand why Africa has made little progress toward implementing currency unions in recent years.
Rights
© The Authors 2025
This is an Open Access article distributed under the terms of the Creative Commons Attribution Non-Commercial 4.0 International (CC BY-NC 4.0) License, which permits non-commercial re-use, distribution, and reproduction in any medium, provided the original work is properly cited. For commercial re-use, please contact journalpermissions@oup.com.
ORCID
0000-0002-0204-9444 (Strong)
Original Publication Citation
Keen, B. D., & Strong, C. O. (2025). Ethnic politics and fiscal dominance: Implications for currency union formation in Sub-Saharan Africa. Journal of African Economies. Advance online publication. Article ejaf015. https://doi.org/10.1093/jae/ejaf015
Repository Citation
Keen, Benjamin D. and Strong, Christine O., "Ethnic Politics and Fiscal Dominance: Implications for Currency Union Formation in Sub-Saharan Africa" (2025). Economics Faculty Publications. 84.
https://digitalcommons.odu.edu/economics_facpubs/84
Supplementary Data
Included in
African Studies Commons, Finance and Financial Management Commons, International Economics Commons