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Fixed parity of the exchange rate and economic performance in the CFA zone : a comparative study

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  • Elbadawi, Ibrahim
  • Majd, Nader
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    Abstract

    The authors compare economic performance in the CFA (franc) zone with the economic performance in similar countries outside the CFA zone in recent years. The results of their model estimates indicate that the competitive position for CFA members was weaker in the second half of the 1980s than in the first half and weaker than in non-CFA countries in terms of output growth as well as the performance of exports, investment, and savings. The exception was domestic inflation: the CFA fared better on that front. Results for a longer-term comparison are somewhat mixed. The CFA zone performed better than the others in exports, domestic savings and investment, and inflation, but failed in the long run to distinguish itself in terms of economic growth. The authors use a modified control group approach to compare changes in macroeconomic indicators in the CFA countries with those in countries elsewhere in sub-Saharan Africa and similar low-income developing countries. They control for initial conditions, changing exogenous internal and world environment, and policy stance. Their approach allows for a formal testing of whether zone membership is a random choice. The implication of randomness is that the CFA zone economies would have performed the same as the rest of sub-Saharan Africa, for example, if there had been no zone. Their results show the assumption of randomness to be valid only for GDP growth and inflation.

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    Bibliographic Info

    Paper provided by The World Bank in its series Policy Research Working Paper Series with number 830.

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    Date of creation: 31 Jan 1992
    Date of revision:
    Handle: RePEc:wbk:wbrwps:830

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    Related research

    Keywords: Economic Theory&Research; Environmental Economics&Policies; Economic Stabilization; Achieving Shared Growth; Financial Intermediation;

    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Honohan, Patrick, 1992. "Price and monetary convergence in currency unions: The franc and rand zones," Journal of International Money and Finance, Elsevier, vol. 11(4), pages 397-410, August.
    2. Guillaumont, Patrick & Guillaumont, Sylviane & Plane, Patrick, 1988. "Participating in African monetary unions: An alternative evaluation," World Development, Elsevier, vol. 16(5), pages 569-576, May.
    3. Hausman, Jerry A, 1978. "Specification Tests in Econometrics," Econometrica, Econometric Society, vol. 46(6), pages 1251-71, November.
    4. Faini, Riccardo & de Melo, Jaime, 1990. "Adjustment, investment, and the real exchange rate in developing countries," Policy Research Working Paper Series 473, The World Bank.
    5. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
    6. Devarajan, Shantayanan & de Melo, Jaime, 1987. "Evaluating participation in African monetary unions: A statistical analysis of the CFA Zones," World Development, Elsevier, vol. 15(4), pages 483-496, April.
    7. Devarajan, Shantayanan & de Melo, Jaime, 1990. "Membership in the CFA zone : Odyssean journey or Trojan horse?," Policy Research Working Paper Series 482, The World Bank.
    8. Devarajan, Shantayanan & de Melo, Jaime, 1987. "Adjustment with a Fixed Exchange Rate: Cameroon, Cote d'Ivoire, and Senegal," World Bank Economic Review, World Bank Group, vol. 1(3), pages 447-87, May.
    9. Serven, Luis & Solimano, Andres, 1992. "Private Investment and Macroeconomic Adjustment: A Survey," World Bank Research Observer, World Bank Group, vol. 7(1), pages 95-114, January.
    10. Chhibber, Ajay, 1991. "Africa's rising inflation : causes, consequences, and cures," Policy Research Working Paper Series 577, The World Bank.
    11. Honohan, Patrick, 1990. "Monetary cooperation in the CFA zone," Policy Research Working Paper Series 389, The World Bank.
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    Cited by:
    1. Ibrahim A. Elbadawi & Raimundo Soto, . "Real Exchange Rates and Macroeconomic Adjustment in Sub-Sahara Africa and Other Developing Countries," ILADES-Georgetown University Working Papers inv093, Ilades-Georgetown University, Universidad Alberto Hurtado/School of Economics and Bussines.
    2. Jian-Ye Wang & Nisreen H. Farhan & Amar Shanghavi & Márcio Valério Ronci & Misa Takebe, 2008. "The Choice of Monetary and Exchange Rate Arrangements for a Small, Open, Low-Income Economy," IMF Working Papers 08/118, International Monetary Fund.
    3. Patrick Plane, 1996. "La privatisation dans les pays en développement : déterminants et conséquences macro-économiques," Économie et Prévision, Programme National Persée, vol. 125(4), pages 19-36.
    4. Elbadawi, Ibrahim & Majd, Nader, 1996. "Adjustment and economic performance under a fixed exchange rate: A comparative analysis of the CFA zone," World Development, Elsevier, vol. 24(5), pages 939-951, May.
    5. Savvides, Andreas, 1998. "Inflation and monetary policy in selected West and Central African countries," World Development, Elsevier, vol. 26(5), pages 809-827, May.

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