This paper examines the trade promoting effects of monetary union in the context of the CFA franc zone. Using the gravity model as a basis for predicting the volume of trade between countries, the study attempts to estimate the potential for increased trade within the CFA franc zone. The study shows that the CFA countries have experienced relatively low monetary growth, relatively strict budgetary disciplines, and consistently low inflation. However, the results of the study indicate that monetary union in the case of the CFA franc zone did not promote economic integration among member countries in the form of expanded trade. The actual trade among these countries remained small despite the use of common foreign exchange policy and free transferability of resources among these countries.
KeywordsRegional IntegrationMonetary UnionFCFAModel of GravityCommercial Potentialities
Hallerberg, E.W. and Ozden, C. (2000) Monetary Union Institutional Structure and Commitment, The CFA. Emory University, Miméo.
Devarajan, S. and De Melo, J. (1987) Evaluating Participation in African Monetary Unions: A Statistical Analysis of the CFA Zones. World Development, 15, 483-496. https://doi.org/10.1016/0305-750X(87)90115-X
Devarajan, S. and de Melo, J. (1991) Membership in the CFA Zone: Odyssean Journey or Trojan Horse? Conference on African Economic Issues, Nairobi.
Clark, P. (1973) Uncertainty, Exchange Risk and the Level of International Trade. Western Economic Journal, 11, 303-313. https://doi.org/10.1111/j.1465-7295.1973.tb01063.x
Hooper, P. and Kohlhagen, S. (1978) The Effects of Exchange Rate Uncertainty on the Prices and Volume of International Trade. Journal of International Economics, 8, 483-511. https://doi.org/10.1016/0022-1996(87)90001-8
Commission Européenne (1990) One Market, One Money. European Economy 44.
Kenen, P. (2003) Five years of the ECB, Centre Piece. The Magazine of Economic Performance, 8, 31-36.
Rose, A.K. (2000) One Money, One Market and the Effect of Common Currencies on Trade. Economic Policy, 15, 7-45. https://doi.org/10.1111/1468-0327.00056
Rose A.K. (2002) Honey, The Currency Union Effects on Trade: Hasn’t Blown Up. The World Economy, 25, 475. https://doi.org/10.1111/1467-9701.00444
Frankel, J. and Rose, A. (2002) Estimating the Effect of Currency Unions on Trade and Output. Quarterly Journal of Economics, No. 117 (2).
Allechi, M. and Niamkey, M.A. (1994) Evaluating the Net Gains from the CFA Franc Zone Membership: A Different Perspective. World Development, 22, 1147-1160. https://doi.org/10.1016/0305-750X(94)90082-5
Cobham, D. and Robson, P. (1994) Monetary Integration in Africa: A Deliberately European Perspective. World Development, 22, 285-299. https://doi.org/10.1016/0305-750X(94)90122-8
Glick, R. and Rose, A.K. (2002) Does a Currency Union Affect Trade? The Time Series Evidence. European Economic Review, 46, 1125-1151. https://doi.org/10.1016/S0014-2921(01)00202-1
Alesina, A. and Barro, R.J. (2002) Currency Unions. Quarterly Journal of Economics, No. 117.
Alesina, A., Barro, R.J. and Tenreyro, S. (2002) Optimal Currency Areas. NBER, Working Paper, No. 9072.
Carrère, C. (2004) African Regional Agreements: Impact on Trade with or without Currency Unions. Journal of African Economies, 13, 199-239. https://doi.org/10.1093/jae/ejh010
Tsangarides, C.-G., Ewenczyk, P. and Hulej, M. (2006) Stylised Facts on Bilateral Trade and Currency Unions: Implications for Africa. IMF Working Paper, WP/06/31.
Assane, D. and Pourgerami, A. (1994) Monetary Cooperation and Economic Growth in Africa: Comparative Evidence from the CFA Zone Countries. Journal of Development Studies, 30, 423-442. https://doi.org/10.1080/00220389408422322
Hadjimichael, M.T. and Galy, M. (1997) The CFA Franc Zone and the EMU. IMF Working Paper (WP/97/156), Washington DC.
World Bank (1998) World Development Report 1997. World Bank, Washington DC.
Medhora, R. (1993) Monetary Integration in West Africa: Lessons from the Integration.
Foroutan, F. and Pritchett, L. (1993) Intra-Sub-Sahara African Trade: Is It Too Little. Policy Research Working Paper No. 1225, The World Bank Policy Research Dept, Trade Policy Division.
Lyakurwa, N.M. (1993) Trade Policy and Promotion in Sub-Saharan Africa. Special Paper No. 12, African Economic Research Consortium, Nairobi.
IMF (1991, 1993) Direction des Statistiques. Washington DC.
UNDP and World Bank (1992) Africa Development Indicators. World Bank World Bank, Washington DC.
Oramah, B.O. and Abou-Lehaf, C. (1998) Commodity Composition of African Trade and Intra-African Trade Potential. Journal of African Economies, 7, 263-300. https://doi.org/10.1093/oxfordjournals.jae.a020951
Wang, L.A. and Winters, L.A. (1991) The Trade Potential of Eastern Europe. Journal of Economic Integration, 7, 113-136. https://doi.org/10.11130/jei.1992.7.2.113
Yeats, A. (1998) What Can Be Expected from African Regional Trade Arrangement? Some Empirical Evidence, Policy Research Working Paper No. 2004, World Bank, Washington DC.
Frankel, J. (1997) Regional Trading Blocks in the World Economy. Institute for International System, Institute for International Economics, Washington DC. https://doi.org/10.7208/chicago/9780226260228.001.0001
Tinbergen, J. (1962) Shaping the World Economy, Suggestions for an International Economic Policy. The Twentieth Century Fund, New York.
Poyhonen, P. (1963) A Tentative Model for the Flow Trade between Countries. Weltwirtschafitiliches Archiv, Band 90, heft 1.
Linneman, H. (1966) An Econometric Study of International Trade Flows.
Aitken, N.D. (1973) The Effect of EEC and EFTA on European Trade: A Temporal Cross Section Analysis. American Economic Review, 63, 881-892.
Sapir, A. (1981) The Trade Benefits under EEC Generalized System of Preferences. European Economic Review, 15, 339-355.
Anderson, A. (1979) A Theoretical Foundation for the Gravity Model. American Economic Review, 63, 881-892.
Bergstrand, J.H. (1985) The Gravity Equation in International Trade: Some Microeconomic Foundations and Empirical Evidence. Review of Economics and Statistic, 67, 474-481. https://doi.org/10.2307/1925976
Deardorff, A.V. (1995) Determinants of Bilateral Trade: Does Gravity Work in a Neo-Classic World? National Bureau for Economic Research Working Paper 5377.
Stewart, J.Q. (1940) Suggested Principles of Social Physics, Science, 106, 179-180.
Martinez-Zarzoso, I. and Nowak-Lehmann, F. (2003) Augmented Gravity Model: An Empirical Application to MERCOSUR-EU Trade Flows. Journal of Applied Economics, 6, 291-316. https://doi.org/10.1080/15140326.2003.12040596
Helpman, E. (1987) Imperfect Competition and International Trade: Evidence from Fourteen Industrial Countries. Journal of the Japanese and International Economies, 1, 62-81. https://doi.org/10.1016/0889-1583(87)90027-X
Oguledo, I.V. and MacPhee, C.R. (1994) Gravity Models: A Reformulation and an Application to Discriminatory Trade Arrangements. Applied Economics, 26, 107-120. https://doi.org/10.1080/00036849400000066
Hummels, D. and Levinsohn, J. (1995) Monopolistic Competition and International Trade: Reconsidering the Evidence. Quarterly Journal of Economics, 110, 799-836. https://doi.org/10.2307/2946700
Anderson, J.E. and Wincoop, E. (2001) Gravity with Gravitas: A Solution to the Border Puzzle. National Bureau for Economic Research Working Paper, 8079.
Smith, C. (2002) Currency Unions and Gravity Models Revisited. Reserve Bank of New Zealand, Discussion Paper Series DP 2002/07.
Balassa, B. and Beuvens, L. (1988) The Determinants of Intra-European Trade in Manufactured Goods. European Economic Review, 32, 1421-1437.
Eichengreen, B. and Bayoumi, T. (1995) Is Regionalism Simply a Diversion? Evidence from the Evolution of the EC and EFTA.
Naudet, J.D. (1993) Modélisation des Flux d’Echanges Extérieurs Internationaux (1970-1990) et Analyse des Modèles d’Ouverture en Afrique de l’Ouest. Document de travail, n° 13 réalisé dans le cadre de l’étude sur les perspectives à long terme en Afrique de l’ouest, OCDE, BAD, CILSS.
Elbadawi, I. (1995) The Impact of Regional Trade and Monetary Schemes on Intra-Sub-Saharan Africa Trade. In: Oyedjide, et al., Eds., Regional Integration and Trade Liberalization in Sub-Saharan Africa, Macmillan Press Ltd., London, Vol. 22, No. 8, 1147-1160.
Nitsch, V. (2002) Honey, I Shrunck the Currency Union Effect on Trade. The World Economy, 25, 457-474.
Longo, R. and Sekkat, K. (2004) Economic Obstacles to Expanding Intra-African Trade. World Development, 32, 1309-1321. https://doi.org/10.1016/j.worlddev.2004.02.006
Musila, J.W. (2005) The Intensity of Trade Creation and Trade Diversion in COMESA, ECCAS and ECOWAS: A Comparative Analysis. Journal of African Economies, 14, 117-141. https://doi.org/10.1093/jae/ejh039
Avom, D. (2005) Les Déterminants des échanges dans la CEMAC: Une évaluation empirique. Economie Appliquée, 58, 127-153.
Hausman, J.A. and Taylor, W.E. (1981) Panel Data and Unobservable Individual Effects. Econometrica, 49, 1377-1398. https://doi.org/10.2307/1911406
Cassim, R.D. and Hartzemburg, T. (1997) Trade Related Aspect of Regional Intégration in Southern Africa. Final Report, AERC.
Gbetnkom, D. and Avom, D. (2005) Intégration par le marché, le cas de l’UEMOA. Région et Développement, No. 22, 85-103.
Agbodji, A.E. (2007) Intégration et échanges commerciaux Intra Sous-régionaux: Le Cas de l’UEMOA. Revue Africaine de l’Intégration, 1, 161-188.
Diaw, D. and Tra, T.A.-D. (2009) Intégration Régionale et expansion du Commerce Sud-Sud: Le cas du Sénégal dans l’UEMOA. Revue Tiers-Monde, Armand Colin, 627-646.