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The Euro and the CFA Franc: Evidence of sectoral trade effects

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  • Martínez-Zarzoso, Inmaculada

Abstract

This paper estimates a gravity model of trade to evaluate the trade effects of the Euro on sectoral trade within the Euro Zone, the CFA Franc Zone and between the Eurozone and the CFA Franc Zone, when CFA countries acquired fixed rates against the non-francophone Eurozone members. The formation of the Eurozone provides a quasi-natural experiment to estimate the effects on trade of fixed exchange rates, since the change in exchange rate regime for CFA countries with all Eurozone countries but France was not trade related. This is tested using sectoral trade data for 128 countries over the period 1995-2009 and validated using a larger sample of 180 countries over the period 1973 -2013. The main departure from Frankel (2008), is the use of sectoral trade and the inclusion of bilateral-sectoral fixed effects as well as controls for multilateral resistance, namely time varying country-fixed-effects for exporters and importers, in the gravity model specification. The main results indicate that the introduction of the Euro is generally not associated with positive effects for average trade flows between the CFA Franc Zone and other Eurozone countries. However, the results differ by sector and we find that agricultural (homogeneous products) exports from CFA countries to Euro adopters increased by almost fifty (thirty) percent after the euro adoption.

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  • Martínez-Zarzoso, Inmaculada, 2017. "The Euro and the CFA Franc: Evidence of sectoral trade effects," University of Göttingen Working Papers in Economics 311, University of Goettingen, Department of Economics.
    • Handle: RePEc:zbw:cegedp:311
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    2. Joseph Kopecky, 2024. "A Match Made in Maastricht: Estimating The Treatment Effect of the Euro On Trade," Open Economies Review, Springer, vol. 35(1), pages 159-187, February.

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    More about this item

    Keywords

    CFA; Euro Effect; Bilateral Trade; Panel Data;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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