Rethinking monetary policy and inclusive growth in ECOWAS: Institutional and climate resilience mediation and moderation through structural equation modeling

The Economic Community of West African States (ECOWAS) has increasingly prioritized inclusive growth as a pathway to sustainable development, yet persistent inequality, unemployment, weak institutions, and climate-related vulnerabilities continue to constrain broad-based prosperity. This study investigates the effects of monetary policy on inclusive growth using panel data from 15 ECOWAS countries covering the period 2008 to 2023. Methodologically, the study employs a regression-based Structural Equation Modeling (SEM) framework that simultaneously estimates direct, indirect, and conditional effects, allowing institutional quality to operate as a mediator while climate vulnerability and climate readiness function as moderators. The results indicate that money supply exerts a positive and statistically significant effect on inclusive growth, both directly and indirectly through improvements in institutional quality. In contrast, inflation and interest rates are found to reduce inclusive growth. The findings further reveal that institutional quality strengthens the transmission of monetary policy to inclusive development outcomes, while climate readiness enhances, and climate vulnerability weakens, the effectiveness of this transmission mechanism. The study’s primary contribution lies in integrating monetary policy, institutional quality, and climate resilience within a unified SEM framework, providing new evidence for ECOWAS. The findings underscore the importance of coordinating monetary, governance, and climate policies to foster sustainable and inclusive growth in the region.