An Empirical Study on the Causality Relationship between Government Budget Deficit and Current Account Deficit in West Africa

The global debate over deficits and debts and their impact on economic growth now takes a central stage in economic and political discuss, not only at the national level but also at regional and global levels. Deficits have serious consequences on future generations since they will be obliged to pay higher taxes to pay-off the debt at higher interest, which also means lower domestic investments in public infrastructure. Hence during the recent Chicago G8 summit, the issue that dominated the agenda was how to address this global crisis with some nations proposing economic stimulus whiles others advocated for austerity. The deficit dilemma is more serious for the least developed regions of the world where proper management of economic resources is a huge challenge and where formulation of prudent economic policies to tackle these issues is left unsettled. Both current account and government budget deficits phenomenon have been a long standing economic dilemma for West Africa, despite the fact that most countries in the region are naturally endowed with resources. This study uses Granger causality tests to determine the causal relationship between the two deficits for West African policy-makers to comprehend the deficit problems. The empirical analysis from the fourteen countries over a twenty years timespan illustrates the heterogeneous economic nature and the complexity for the governments of West Africa to undertake needed crisis initiatives to sustain their development