American University
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Exchange rate change, the trade balance and output growth in developing countries: Evidence from the CFA Franc Zone

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posted on 2023-09-06, 03:41 authored by Raymond K. Boumbouya

This dissertation is an empirical study of the effects of exchange rate changes on economic activities in the CFA Franc Zone. Specifically, this study uses three econometric methodologies to investigate the responses of the trade balance and output to changes in the exchange rate in the CFA Franc Zone over the period 1980-2005. First, we use a generalized impulse response function (GIRF) to estimate the effect of exchange rate depreciation on the trade balance of Cote d'Ivoire. Second, a dynamic panel approach is used to estimate the effects of exchange rate changes on the trade balance of thirteen countries of the CFA Franc Zone. Third, a structural vector autoregression (SVAR) model is employed to estimate the response of output to a shock to the real exchange rate in Cote d'Ivoire, Cameroon, Senegal and Gabon. The main results show that exchange rate has minimal effects on the trade balance of the CFA Franc when we estimate the whole sample. When we disaggregate the data by region, it is only then the trade balance appears to be sensitive to exchange rate change; a case where the trade balance of the WAEMU region tends to be more sensitive than that of the CEMAC region. The results also show that the trade balance of Cote d'Ivoire describes a delayed J-curve, one that is inconsistent with the classic J-curve phenomenon. Finally, output in Cameroon and Gabon shows a significant contemporaneous decline while it does not significantly respond to a shock to the real exchange rate in Cote d'Ivoire and Senegal, thus providing support to the views that the effects of exchange rate on output in developing countries may be negative in the short run while neutral in the long run. The study also focuses on the reasons for the short run decline and the overall insensitivity. These findings suggest that policymakers of the CFA Franc Zone should be cautious about using exchange rate policy as a recovery effort, and that alternative policies may be sought for their growth agenda.







Thesis (Ph.D.)--American University, 2009.


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