EXTENDED ABSTRACT: Background and Context The global financial crisis has had important repercussions on cross-border economic activity. After a sharp and sudden collapse in international trade in the last quarter of 2008, world trade flows declined by about 12% in 2009 according to the WTO. This greatly exceeds the estimated loss of 5.4% of world GDP during the same period. Exports’ contraction was especially acute for small open economies, several of whom saw their trade volumes in the second half of 2008 fall by up to 30% year-on-year. This decline in cross-border trade contributed to the spread of recessionary pressures to countries which had little direct exposure to foreign financial markets where the crisis originated. This was the case in Africa. Indeed, as stated by Ali (2009) the impact of this global turmoil on African aggregate export revenues and foreign direct investments has been immediate and substantial. as shown on figure 1, exportations have been unstable but there is not a significant decrease in exported volume since 2005Q1.

However we note that increasing trend observed in exports until 2007Q3 has been replaced by a more or less decreasing trend. On figure 2 we observe a constant increase in African importations between 2005Q1 and 2016Q3. Figure 1 : Exportations in Africa Figure 2 : Importations in Africa Source: UNCTADStat Database (2017) 2 Concerning intra-African trade, data (figure 3) reveal that annual share of intraAfrican exports is marked by two periods. The first one runs from 1995 to 2006. During this phase we observe a decreasing trend in the ratio. Since 2007 there is an upward trend in the ratio certainly due to financial difficulties in the industrialized world. In the same vein, we observe an almost permanent rising trend in imports between 1995 and 2015 though the slight decrease between 2003 and 2007. Without jeopardizing these positive observations, we note that intra-African trade represents less than 20% of total African Trade. Moreover CFA zone countries are those with the less intra-group trade and less intra-African trade. So there is need to address the issue of increasing intra-African trade. Figure 3 : Intra-African trade on Total African trade (1995-2015) Source: UNCTADStat Database (2017) In this vein, there are different levers on which African leaders may pull to initiate an expansion in intra-African trade (diversification, trade barriers elimination, value chain building …). In this paper we focus on the effects of the value of money thereof.

he value of money is the purchase power of the money that is the number of goods and/or services that can be bought with a unity of money. A variation in the value of money implies a variation in the potentially purchased quantity of goods and/services. So a fluctuating value of money should certainly affect trade. In an international perspective, the value of money is assessed using exchange rate or foreign reserves. Exchange rate is a measure of the value of one currency in term of another currency (Mishkin, 2010) while reserves in a fixed peg regime are considered to be a safeguard of the value of the money. When the level of the reserves diminishes there is a pressure on the value of the currency, which could lead to devaluation. A stable value of money seems to be an incentive for the expansion of trade relationships between two countries. 3 Problem and Theoretical review Existing theoretical literature on the effects of exchange rate volatility on trade is inconclusive. Theoretically, a change in exchange rate may have an influential impact on foreign investment decisions, on exportation opportunities and on price competitiveness of importations. Indeed, investment decisions suppose forecasting of future returns and comparing risk and return of potential alternatives. So exchange rate, or better, the value of a currency is able to create incentives to invest or not in a particular country. Though the rationality of the theoretical demonstration, empirical works fail to reach a consensus. To illustrate the empirical confusion, Corcic & Pugh (2008) as well Hail & Pugh (2013) list researches on the subject between 1978 and 2009. They show that several theoretical studies arrive at the conclusion that exchange rate volatility can have a negative impact on trade flows (57% of the sample)1 .

 Several others conclude that the effect is uncertain (17% of the sample) 2 , null (16% of the sample)3 or positive (10% of the sample) 4 . At its early stage, this literature focused exclusively on developed countries. Adjunction of developing countries in the sample contributes in the prominence of the negative effect of exchange rate volatility. However, Hail & Pugh (2013) note that attention should be paid on the methodology used and the studied context. Other studies emphasize the dissemblance between the short run effect and the long run effect (Onafowora & Owoye, 2008). Globally, as a conclusion to their empirical review with a meta-regression analysis, Haile & Pugh (2013) declare that empirical results should not be generalized given their sensitivity to various specific factors. This conclusion can be evoked to justify the need for case studies especially on African countries which have not yet been deeply studied. To try to fill this gap the paper is built around the following question: does the value of money matter for intra-African trade? This main question may be divided into two sub-questions: 1) What are the effects of exchange rate volatility on intra-African trade of the CFA zone? 2) How does reserves’ volatility affect intra-African trade of the CFA zone? 1 Hall et al (2010); Chit et al (2010); Arize et al (2008); Clark et al (2004); Baron (1976); Pere and Steinherr (1989) 2 3 Bahmani-Oskooce & Harvey (2011); Caglayan & Di (2010); 4 Franke (1991) and Sercu and Vanhulle (1992) Barkoulas, Baum, and Caglayan (2002) 4 Interest and objective The interest to address such a question is fourfold. First of all there are few investigations on African countries regarding the effects of exchange rate volatility on intra-African trade.

A proof of a negative impact should be an argument for a common currency for Africa in order to eliminate one of the risk factor among commercial partners, namely exchange rate volatility (hence after ERvol). Secondly, most studies (even studies on Africa) focus on world trade or trade with developed countries ((Medhora, 1990; Smit, 1991; Usman & Aliyu, 2010; Onafowora & Owoye, 2008 …). To the best of our knowledge, even the studies focusing on bilateral trade ignore intra-African trade. Thirdly, even if there are some sectoral studies on agricultural products, on manufactured products as well as disaggregated-flows’ studies (imports or exports), there is no study on trade in services. Fourthly, on an empirical point of view, most studies use a VAR or a VECM model (Lastrapes and Koray, 1990; Chowdhury & Wheeler, 2008; Onafowora & Owoye, 2008; Boug & Fagereng, 2010; Usman & Aliyu, 2010 …). Some recent studies rely on panel data (Hall et al, 2010; ). Recent advances in econometric methods allow combining the advantage of a panel model with the impulse response analysis of a VAR model using a panel VAR model (PVAR). More empirical interest is in the decomposition of flows (exports and imports) as well as decomposition of content (total trade in goods and services, total trade in services, total trade in goods) Model The detailed model is made of simultaneous dynamic equations for each endogenous variable. The rationale behind each equation is well explained within the paper. There are 04 equations - Equation of trade: π‘‡π‘Ÿπ‘Žπ‘‘π‘’ = 𝑓(𝑅𝐷𝐺𝑃, 𝐼𝑁𝐹, 𝑅, πΈπ‘…π‘£π‘œπ‘™,𝐷𝐼𝑉, πœŽπΊπ·π‘ƒ, 𝑋) - Equation of economic growth: 𝑅𝐺𝐷𝑃 = 𝑓(𝑇𝑅𝐴𝐷𝐸,𝐼𝑁𝐹,𝐼𝑁𝑉𝐸𝑆𝑇, 𝐷𝐼𝑉, πΊπ‘œπ‘£π‘’π‘Ÿπ‘›π‘Žπ‘›π‘π‘’ - Equation of inflation: 𝐼𝑁𝐹 = 𝑓(πΈπ‘…π‘£π‘œπ‘™, 𝐸𝑅, 𝑀, 𝑖, 𝑅𝐺𝐷𝑃, 𝑋𝑀, πΆπ‘œπ‘šπ‘ƒπ‘Ÿπ‘–π‘π‘’)) - Equation of exchange rate volatility: πΈπ‘…π‘£π‘œπ‘™ = 𝑓(𝐼𝑁𝐹, 𝑅, 𝑅𝑑𝑖𝑓𝑓,𝑅𝐺𝐷𝑃, 𝑋𝑀) 5 Variables and Data This work concerns trade flows of CFA zone’s countries from/to other African countries. Instead of a case by case bilateral perspective, we adopt a global perspective based on the volume of trade from or in direction of African group of countries. CFA zone is made of the 6 countries of CAEMC and the 8 countries of WAEMU. The variables are derived from the UNCTAD database. Macroeconomic variables that are generally accepted as important for trade explanation (inflation differential, interest rate differential, exchange rate, exchange rate volatility, real GDP of the country, real GDP of the partner, volatility of Growth), trade variables (trade diversification, trade structure similarity …). Key Words: Money, Exchange Rate, Intra-african Trade, CFA zone,

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