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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

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.

Suggested Citation

  • Elbadawi, Ibrahim & Majd, Nader, 1992. "Fixed parity of the exchange rate and economic performance in the CFA zone : a comparative study," Policy Research Working Paper Series 830, The World Bank.
    • Handle: RePEc:wbk:wbrwps:830
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    References listed on IDEAS

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    Cited by:

    1. Rossum, M.T.A. & Tak, C.M., 1994. "The CFA franc zone : reason for participation," Serie Research Memoranda 0040, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics.
    2. 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.
    3. Giorgioni, Gianluigi & Holden, Ken, 2002. "The crisis of the CFA Franc zone: the case of Cote d'Ivoire," Economic Modelling, Elsevier, vol. 19(4), pages 531-564, August.
    4. Savvides, Andreas, 1998. "Inflation and monetary policy in selected West and Central African countries," World Development, Elsevier, vol. 26(5), pages 809-827, May.
    5. Savvides, Andreas, 1995. "Economic growth in Africa," World Development, Elsevier, vol. 23(3), pages 449-458, March.
    6. Mr. Jian-Ye Wang & Nisreen H. Farhan & Amar Shanghavi & Mr. Márcio Valério Ronci & Ms. Misa Takebe, 2008. "The Choice of Monetary and Exchange Rate Arrangements for a Small, Open, Low-Income Economy: The Case of São Tomé and Príncipe," IMF Working Papers 2008/118, International Monetary Fund.
    7. Mamadou Wane & Paul Burkett & Robert Guell, 1996. "Economic growth and monetary union in sub-Saharan Africa: new evidence on the effects of CFA-zone membership," Applied Economics Letters, Taylor & Francis Journals, vol. 3(12), pages 769-773.
    8. Elbadawi, Ibrahim A & Soto, Raimundo, 1997. "Real Exchange Rates and Macroeconomic Adjustment in Sub-Saharan Africa and Other Developing Countries," Journal of African Economies, Centre for the Study of African Economies, vol. 6(3), pages 74-120, Supplemen.
    9. 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.
    10. Mr. Plamen K Iossifov & Ms. Misa Takebe & Zaijin Zhan & Mr. Noriaki Kinoshita & Mr. Robert C York, 2009. "Improving Surveillance Across the CEMAC Region," IMF Working Papers 2009/260, International Monetary Fund.

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