Towards West-Africa Regional Economic Integration: Formalising the Informal Sector

Abstract

The existence of large informal economy is one reason for the developing countries not to be benefiting fully from the world economy through integration. The countries have remained behind those of the north in global financial, monetary and market development. The paper employed secondary data for Nigeria, the largest economy in the West- African sub-region, computes the indication of the informal sector in the country with monetary variables and develops an Informal-Formal Sector Transmission Model for Economic Integration. The data were analysed using currency-money supply approach, graph and tables. The ratio of currency in circulation to broad money supply (M2) indicates that the incidence of the informal sector shrunk between 1960 and 2022. The currency outside bank to M2 ratio reduced from 9.39 to 5.55 per cent while currency in circulation to M2 ratio reduced from 11.96 to 6.48 per cent in 2010 and 2022 respectively. The Model explains the means of transforming informal sector to formal sector that leads to market access in which all artificial barriers to trade are removed to facilitate free trade flows within West-Africa. The paper reflects that with market access for the formal sector, countries would benefit in terms of growth, employment, poverty reduction, intra regional trade and labour mobility. This will promote the drive for financial and monetary union as well as economic integration of the sub-region. The paper recommends the registration of informal activities, the establishment of Informal Sector Institute and provision of inputs support for the sector.