Introduction

Nigeria and Ghana are the two largest English-speaking economies in West Africa and share many economic characteristics, as well as several aspects of economic and political history. Since Nigeria’s independence in 1960 and Ghana’s in 1957, both countries have been characterized by recurrent current account deficits and continual increases in external debt. The ratio of the external debt to GDP for Nigeria was 10 percent in 1970, reached 110 percent in 1986 and stood at approximately 71 percent in 1997. The corresponding figures for Ghana were 25 percent, 48 percent and 102 percent. The recurring current account deficits coupled with the evolution of the external debt call for research into the determinants, excessiveness and sustainability of the external imbalances of these two countries. This examination requires a formal model that gives the optimal current account balance, which can then be compared with the actual one. This book uses the present value model of the current account (PVMCA) to derive the optimal current account balances for Nigeria and Ghana and then to assess the excessiveness of the actual current account balances during the period 1960-97.