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The CFA Arrangements: More Than Just an Aid Substitute?

Author

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  • Etienne B. Yehoue

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.

Suggested Citation

  • Etienne B. Yehoue, 2006. "The CFA Arrangements: More Than Just an Aid Substitute?," Economie Internationale, CEPII research center, issue 107, pages 107-133.
    • Handle: RePEc:cii:cepiei:2006-3te
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    File URL: http://www.cepii.fr/IE/rev107/ei107e.htm
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    Citations

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    Cited by:

    1. Couharde, Cécile & Coulibaly, Issiaka & Guerreiro, David & Mignon, Valérie, 2013. "Revisiting the theory of optimum currency areas: Is the CFA franc zone sustainable?," Journal of Macroeconomics, Elsevier, vol. 38(PB), pages 428-441.
    2. Martina Metzger, 2008. "Regional Cooperation And Integration In Sub-Saharan Africa," UNCTAD Discussion Papers 189, United Nations Conference on Trade and Development.
    3. 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.

    More about this item

    Keywords

    Currency unions; international risk sharing; aid; trade; monetary block;
    All these keywords.

    JEL classification:

    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • F15 - International Economics - - Trade - - - Economic Integration
    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F35 - International Economics - - International Finance - - - Foreign Aid

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