1. THE UNIVERSITY OF YAOUNDE II
UNIVERSITE DE YAOUNDE II
THE UNIVERSITY OF YAOUNDE II
Eighth Annual Conference on Regional Integration in Africa (ACRIA 8)
MONEY VALUE STABILITY AND ITS EFFECTS ON CFA ZONE INTRA-AFRICAN TRADE
Françoise OKAH-EFOGO
LOME 3-4 July 2017

2. BACKGROUND PROBLEM OBJECT METHOD RESULTS CONCLUSION RECOMMANDATIONS

3. 2. BACKGROUND
MONEY AND TRADE
GLOBAL FACTS
1 . An intense debate on the need to abandon the CFA franc (Kako Nubukpo & al, 2016) 2. Apology of the virtues of African integration for development (AfDD, AU) 3. A plethora of instruments at the disposal of States to promote integration and especially integration through trade, including diversification, the construction of regional value chains, the elimination of multifaceted barriers to trade, A common currency 4; An increase of intra African trade after the recent financial crisis (Ali, 2009; UNCTAD, 2017)
Few investigations of such an effect in African countries
Lack of Theoretical and Empirical Consensus (Hail & Pugh, 2013)
Weak intra-CFA trade despite the common currency
Many initiatives for the creation of a common currency (AU, ECOWAS)
Absence of direct convertibility between African currencies

4. 3. BACKGROUND
14%
67.92%
56.70%

5. 4. PROBLEM
RESEARCH QUESTION Does the value of money matter for CFA countries intra-African trade? Or What are the effects of exchange rate volatility on intra-African trade of the CFA zone?

6. 5. THEORETICAL FRAMEWORK
Exchange rate volatility
Forecasting of future returns
Comparing risk and return of potential alternatives
Intra African Trade
foreign investment decisions,
exportation opportunities
price competitiveness of importations

7. 6. OBJECT
Assess the effect of the instability of exchange rate on CFA countries intra African trade
Measure the intensity and duration of the effects of a shock on the exchange rate differential in terms of intra-African trade
To show the existence or the absence of an instability of the exchange rate differential

8. 7. METHOD MODEL Δ𝑥 𝑖𝑡 = 𝑥 𝑓𝑖𝑡 − 𝑥 𝑑𝑖𝑡
𝑇𝑅𝐴𝐷𝐸 𝑖𝑡 = 𝛼 0 + 𝛼 1 𝑇𝑅𝐴𝐷𝐸 𝑖𝑡−1 + 𝑖=1 𝐼 𝛼 2𝑖 𝐸𝑟𝑣𝑜𝑙 𝑖𝑡−1 + 𝑘=1 𝐾 𝛼 3𝑘 𝐷𝐼𝑉 𝑘𝑡−1 + 𝑗=1 𝐽 𝛼 3𝑗 𝑋 𝑖𝑡−1 + 𝜀 1𝑡 𝐸𝑟𝑣𝑜𝑙 𝑖𝑡 = 𝛽 0 + 𝛽 1 𝐸𝑟𝑣𝑜𝑙 𝑖𝑡−1 + 𝑙=1 𝐿 𝛽 2𝑖 𝑇𝑅𝐴𝐷𝐸 𝑖𝑡−1 + 𝑘=1 𝐾 𝛽 3𝑘 𝐷𝐼𝑉 𝑘𝑡−1 + 𝑗=1 𝐽 𝛽 4𝑗 𝑌 𝑖𝑡−1 + 𝜀 2𝑡 𝐷𝐼𝑉 𝑖𝑡 = 𝛾 0 + 𝛾 1 𝐷𝐼𝑉 𝑖𝑡−1 + 𝑙=1 𝐿 𝛾 2𝑚 𝑇𝑅𝐴𝐷𝐸 𝑖𝑡−𝑚 + 𝐼=1 𝐼 𝛾 3𝑛 𝐸𝑟𝑣𝑜𝑙 𝑖𝑡−1 + 𝑗=1 𝐽 𝛾 4𝑗 𝑍 𝑖𝑡−1 + 𝜀 3𝑡
Δ𝑥 𝑖𝑡 = 𝑥 𝑓𝑖𝑡 − 𝑥 𝑑𝑖𝑡
𝑬𝑹𝒗𝒐𝒍 𝒊𝒕 = 𝝈 ∆𝑬𝑹 𝟐 𝒊𝒕
EXCHANGE RATE VOLATILITY MEASUREMENT
WDI (2017)
IFS (2017)
UNCTAD (2017)
DATA SOURCES

9. EXPORT OF MANUFACTURES EXPORTS OF RAW MATERIAL
8. RESULTS (1/2)
Effects of Exchange Rate Volatility increase on Intra-African Exports
Whole Africa
Southern Africa
Northern Africa
Western Africa
Eastern Africa
Central Africa
TOTAL EXPORTS
Effect of ERvol
Decrease*
Granger Causality
Yes No
EXPORT OF MANUFACTURES
EXPORTS OF RAW MATERIAL
EXPORTS OF FOODSTUFFS
Increase*

10. IMPORT OF MANUFACTURES IMPORTS OF RAW MATERIAL
9. RESULTS (2/2)
Table 3 : Effects of Exchange Rate Volatility on Intra-African Imports
Whole Africa
Southern Africa
Northern Africa
Western Africa
Eastern Africa
Central Africa
TOTAL IMPORTS
Effect of ERvol
Increase *
Granger Causality No
IMPORT OF MANUFACTURES
IMPORTS OF RAW MATERIAL
Decrease*
IMPORTS OF FOODSTUFFS

11. 10. CONCLUSION
(1) our results corroborate the empirical absence of consensus
(2) money value differential induce an increase in CFA countries’ African imports and a decrease in CFA countries’ African exports;
(3) money value differential against Central Africa induces an increase in foodstuffs exports and a decrease in raw material imports.
(4) The effect are transitory and disappear after six years, where the impact is significant

12. 11. RECOMMENDATIONS Political Economy recommendations :
More studies needed on the topic:
To evaluate if positive effects outweight negative effects,
To check for the particular cases in which the positive effects outweight the negative ones,
To adopt a case by case approach given the fact that we use an « average regional value of the exchange rate »
Political Economy recommendations :
At the global level, difference in currencies do matter for intra-African trade; but a common currency should not be a panacea
The issue of common regional currencies should be address
Creation of wealth and promotion of diversification

13. Thank you