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Does monetary integration lead to income convergence in Africa? a study of the CFA monetary area

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Abstract

The CFA franc area is one of the oldest currency unions, but it has come under intense criticism recently for failing to promote economic growth and income convergence between member states. This paper examines the growth experience of the 14 member countries relative to a common benchmark over the period 1960–2011. In particular, we use a combination of parametric and non-parametric methods to study convergence patterns as well as growth dynamics and to identify the factors responsible for changes in relative per-capita income. The results indicate divergence tendencies that result in a bimodal distribution in the long run. The sharp devaluation of the CFA franc in 1994 increases intradistributional mobility which is directed towards lower income levels. The regression analysis suggests that openness, FDI, and financial development have a positive and robust effect on convergence in the currency union.

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Notes

  1. Criticism of the CFA monetary regime has intensified over time, as reflected in Julienne (1988), Coquet and Daniel (1994), Conte (1994), Monga and Tchatchouang (1996), Claveranne (2006), and Nubukpo (2007, 2011), among others.

  2. The CFA franc arrangement dates back to the colonial period when it was decided to issue a common currency in the dependent territories to avoid the need to transport cash (Bloch-Lainé, ed. 1956; Actes du symposium (1998); Hugon 1999, 2009; BCEAO 2000; Geourjon and Guillaumont-Jeanneney 2013; IMF 2015, pp. 69–72). WAEMU, in French UEMOA, is composed by Benin, Burkina Faso, Ivory Coast, Guinee Bissau, Mali, Niger, Senegal, and Togo. CEMAC (Communauté Économique et Monétaire de l’Afrique Centrale) consists of Cameroun, Central African Republic, Gabon, Equatorial Guinea, Republic of Congo, and Chad.

  3. Here we indicate only the key contributions to the literature on convergence in the CFA area. For a brief review of the literature on convergence in Africa, see Diop et al. (2010), p. 266.

  4. For a more detailed discussion of the stochastic kernel, see the technical appendix in Quah (1997b).

  5. For a recent discussion on the reliance of African GDP and growth data, see Jerven (2010, Jerven 2011) and Labrousse (2014).

  6. Equatorial Guinea and Gabon can be seen as outliers due to their high-income levels. We tested the robustness of our results by excluding them from the sample. This changed the benchmark average, and thus the value ranges of the four states, but the transition probabilities and convergence patterns remained almost identical to those for the full sample. These results are available from the authors upon request.

  7. For some recent empirical studies on growth and convergence factors in Africa, including institutional one, see Tumwebaze and Ijjo (2015); Nanfosso and Nguena (2015), Golit and Adamu (2014); Mijiyawa (2013); Ondoa (2013); Diop et al. (2010).

  8. The coefficients for oil exports, human capital, and the institutional variables were not only insignificant but caused all other variables to lose their significance as well. Therefore, we excluded them from all regressions and do not report them in the tables. For the relationship between resource rent and different institutional and political variables see Arezki and Gylfason (2013), and for a short survey see Fosu 2012b).

  9. This is in line with Fosu (2012a) findings that stress the existence of growth accompanied by increasing divergence between African countries.

  10. We exclude year fixed effects from the regression for most specifications of the model to be able to account for the structural break in 1994 by introducing a dummy variable.

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Authors and Affiliations

  1. University of Picardie Jules Verne, CRIISEA, Amiens, France

    Souleymane Ndao & Nikolay Nenovsky

  2. RUDN University, Faculty of Economics, Moscow, Russia

    Nikolay Nenovsky

  3. Texas Christian University, Texas, USA

    Kiril Tochkov

Authors
  1. Souleymane Ndao
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  2. Nikolay Nenovsky
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  3. Kiril Tochkov
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Correspondence to Souleymane Ndao.

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Ndao, S., Nenovsky, N. & Tochkov, K. Does monetary integration lead to income convergence in Africa? a study of the CFA monetary area. Port Econ J 18, 67–85 (2019). https://doi.org/10.1007/s10258-018-0150-8

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  • DOI: https://doi.org/10.1007/s10258-018-0150-8

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