Studies often conclude that the proposed Southern African Development
Community monetary union would be disastrous and not optimal for all member
countries. This is because of the observed low, and sometimes negative business cycle
correlation amongst member countries. However, it has been demonstrated that
the degree of synchronisation is not irrevocably fixed and is endogenous to certain
economic factors. This study, therefore, sets out to investigate factors influencing
business cycle synchronisation in the SADC region. More precisely, the study employs
a generalised method of moments to investigate the influence of trade integration,
financial integration, fiscal policy convergence, monetary policy similarity and oil
prices (a proxy for global common shocks) on the degree of business cycle synchronisation.
To conduct our analysis, we use data covering the period 1994–2014.
In addition, we employ bilateral data as a way of getting around the problem of
unavailability of aggregated regional data. The study finds trade, fiscal policy convergence
and monetary policy similarity to have a sanguine impact on the degree
of business cycle synchronisation. In addition, owing to their procyclical behaviour,
it is observed that financial flows lead to diverging business cycles. Furthermore, the
study finds that oil prices exert a negative impact on business cycle comovement
in the SADC region. The study results have far-reaching policy implications for the
proposed SADC monetary union. It is implied in the study findings that by stimulating
trade and ensuring coherence in macroeconomic policies, SADC can move closer
to being an optimal currency area.