Working Paper
Long-Term Growth in the CFA Franc Zone Countries

The paper identifies and examines those factors that have affected growth in the CFA franc zone countries relative to the non CFA countries. It examines the special arrangements between franc zone countries and France, which give some advantages that seem not to have created a more rapid and sustained growth in the CFA franc zone region. However, the most important factor (which seems to reflect other factors) is found to be the institutional rigidity imposed by the monetary and exchange rate arrangement. The rigidities have negatively affected the different aspects of economies of the CFA franc countries, and therefore affect their long-term growth prospects as an examination of the different factors strongly indicates. For example the imbalances, particularly the external imbalances lacked the self-correcting mechanism. Most of the Non-CFA countries depended on external adjustment strategies by relying on the flexible exchange rate adjustment although with high inflation. The CFA franc countries tried to correct the imbalances by internal adjustment alone with much difficulty. A major difficulty is that the export base is mainly primary goods and the one time across-the-board (all countries the same rate) devaluation increase capacity utilization rather than capacity expansion in almost all the countries. Very thin trade within the zone and large trade between the zone and other countries, tend to generate much disequilibrium. Also a strong and unified monetary system has not been able to produce a strong financial and banking system in the zone. The weak banking sector has therefore encouraged capital flight. Hence for effective macro-economic policy for long-term growth, the factors and rigidities analysed in the paper must actually be taken into consideration and in some cases rigidities must be removed.