Toward the African Continental Free Trade Area : The Effects of Economic Integration and Democracy on Real Misalignments across Exchange Rate Regimes

This paper evaluates the role of economic integration and democracy in rationalizing differences in real exchange rate misalignments across exchange rate regimes in Africa. To this end, the paper derives competing indexes of misalignment using mode...

Full description

Bibliographic Details
Main Authors:	Owoundi Fouda, Ferdinand, Avom, Desire, Kuete, Flora Yselle
Format:	Working Paper
Language:	English
Published:	World Bank, Washington, DC 2021
Subjects:	ACFTA FREE TRADE AGREEMENT REGIONAL INTEGRATION EXCHANGE RATE REGIME DEMOCRACY INVESTMENT AGREEMENT TRADE AND INVESTMENT AFRICAN CONTINENTAL FREE TRADE AGREEMENT
Online Access:	http://documents.worldbank.org/curated/en/451191613569046516/Toward-the-African-Continental-Free-Trade-Area-The-Effects-of-Economic-Integration-and-Democracy-on-Real-Misalignments-across-Exchange-Rate-Regimes http://hdl.handle.net/10986/35144

id	okr-10986-35144
recordtype	oai_dc
spelling	okr-10986-351442022-09-20T00:09:29Z Toward the African Continental Free Trade Area : The Effects of Economic Integration and Democracy on Real Misalignments across Exchange Rate Regimes Owoundi Fouda, Ferdinand Avom, Desire Kuete, Flora Yselle ACFTA FREE TRADE AGREEMENT REGIONAL INTEGRATION EXCHANGE RATE REGIME DEMOCRACY INVESTMENT AGREEMENT TRADE AND INVESTMENT AFRICAN CONTINENTAL FREE TRADE AGREEMENT This paper evaluates the role of economic integration and democracy in rationalizing differences in real exchange rate misalignments across exchange rate regimes in Africa. To this end, the paper derives competing indexes of misalignment using modern cointegration techniques while accounting for cross-sectional dependence. The findings indicate that fixed regimes per se are not prone to more misalignments, as institutional quality and economic links with foreign partners critically matter in explaining the observed discrepancies. Furthermore, when distinguishing between African and international partners in investment agreements, the extent of misalignment differs according to the level of democracy, as democratic countries can afford intermediate regimes, while for weak democracies, fixed regimes are required to curb disequilibria. Finally, membership in a regional economic community significantly reduces the magnitude of misalignments. The results imply that the quality of institutions, more than the type of the exchange rate regime, is called into question and should be the focus of efforts ahead of successful implementation of the African Continental Free Trade Area. 2021-02-18T14:46:27Z 2021-02-18T14:46:27Z 2021-02 Working Paper http://documents.worldbank.org/curated/en/451191613569046516/Toward-the-African-Continental-Free-Trade-Area-The-Effects-of-Economic-Integration-and-Democracy-on-Real-Misalignments-across-Exchange-Rate-Regimes http://hdl.handle.net/10986/35144 English Policy Research Working Paper;No. 9548 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo World Bank World Bank, Washington, DC Publications & Research Publications & Research :: Policy Research Working Paper Africa Sub-Saharan Africa
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ACFTA FREE TRADE AGREEMENT REGIONAL INTEGRATION EXCHANGE RATE REGIME DEMOCRACY INVESTMENT AGREEMENT TRADE AND INVESTMENT AFRICAN CONTINENTAL FREE TRADE AGREEMENT
spellingShingle	ACFTA FREE TRADE AGREEMENT REGIONAL INTEGRATION EXCHANGE RATE REGIME DEMOCRACY INVESTMENT AGREEMENT TRADE AND INVESTMENT AFRICAN CONTINENTAL FREE TRADE AGREEMENT Owoundi Fouda, Ferdinand Avom, Desire Kuete, Flora Yselle Toward the African Continental Free Trade Area : The Effects of Economic Integration and Democracy on Real Misalignments across Exchange Rate Regimes
geographic_facet	Africa Sub-Saharan Africa
relation	Policy Research Working Paper;No. 9548
description	This paper evaluates the role of economic integration and democracy in rationalizing differences in real exchange rate misalignments across exchange rate regimes in Africa. To this end, the paper derives competing indexes of misalignment using modern cointegration techniques while accounting for cross-sectional dependence. The findings indicate that fixed regimes per se are not prone to more misalignments, as institutional quality and economic links with foreign partners critically matter in explaining the observed discrepancies. Furthermore, when distinguishing between African and international partners in investment agreements, the extent of misalignment differs according to the level of democracy, as democratic countries can afford intermediate regimes, while for weak democracies, fixed regimes are required to curb disequilibria. Finally, membership in a regional economic community significantly reduces the magnitude of misalignments. The results imply that the quality of institutions, more than the type of the exchange rate regime, is called into question and should be the focus of efforts ahead of successful implementation of the African Continental Free Trade Area.
format	Working Paper
author	Owoundi Fouda, Ferdinand Avom, Desire Kuete, Flora Yselle
author_facet	Owoundi Fouda, Ferdinand Avom, Desire Kuete, Flora Yselle
author_sort	Owoundi Fouda, Ferdinand
title	Toward the African Continental Free Trade Area : The Effects of Economic Integration and Democracy on Real Misalignments across Exchange Rate Regimes
title_short	Toward the African Continental Free Trade Area : The Effects of Economic Integration and Democracy on Real Misalignments across Exchange Rate Regimes
title_full	Toward the African Continental Free Trade Area : The Effects of Economic Integration and Democracy on Real Misalignments across Exchange Rate Regimes
title_fullStr	Toward the African Continental Free Trade Area : The Effects of Economic Integration and Democracy on Real Misalignments across Exchange Rate Regimes
title_full_unstemmed	Toward the African Continental Free Trade Area : The Effects of Economic Integration and Democracy on Real Misalignments across Exchange Rate Regimes
title_sort	toward the african continental free trade area : the effects of economic integration and democracy on real misalignments across exchange rate regimes
publisher	World Bank, Washington, DC
publishDate	2021
url	http://documents.worldbank.org/curated/en/451191613569046516/Toward-the-African-Continental-Free-Trade-Area-The-Effects-of-Economic-Integration-and-Democracy-on-Real-Misalignments-across-Exchange-Rate-Regimes http://hdl.handle.net/10986/35144
_version_	1764482417931845632

Toward the African Continental Free Trade Area : The Effects of Economic Integration and Democracy on Real Misalignments across Exchange Rate Regimes

Similar Items