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The CFA Arrangements: More Than Just an Aid Substitute?

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  • Etienne B. Yehoue
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    Abstract

    The CFA franc zone has had one of the longest experiences with a fixed exchange rate for a convertible currency and regional integration of any group of developing countries. France, the anchor country, provides aid to support the zone. This paper asks whether the arrangements are more than just an aid substitute. The paper addresses this issue by evaluating the overall performance of the zone over the period 1960-2004. The analysis reveals that when the zone is hit by a negative shock, France increases its aid, thereby acting as a shock absorber. However, it also finds that the zone displays strong performance in two areas—price stability and fiscal policy. Thus the paper concludes that the arrangements are not an aid substitute; they have real macroeconomic value for the zone and complement aid.

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    File URL: http://www.cepii.fr/IE/rev107/ei107e.htm
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    Bibliographic Info

    Article provided by CEPII research center in its journal Economie Internationale.

    Volume (Year): (2006)
    Issue (Month): 107 ()
    Pages: 107-133

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    Handle: RePEc:cii:cepiei:2006-3te

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    Related research

    Keywords: Currency unions; international risk sharing; aid; trade; monetary block;

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    Cited by:
    1. Cécile Couharde & Issiaka Coulibaly & David Guerreiro & Valérie Mignon, 2012. "Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?," Working Papers 2012-13, CEPII research center.
    2. Coulibaly, Issiaka & Davis, Junior, 2013. "Exchange rate regimes and economic performance: Does CFA zone membership benefit their economies?," MPRA Paper 54075, University Library of Munich, Germany.

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