POTENTIAL IMPACTS OF THE PROPOSED WEST AFRICAN MONETARY ZONE ON COWPEA TRADE IN WEST AND CENTRAL AFRICA

Member countries of the Economic Community of West African States (ECOWAS) are expected to form a West African Monetary Zone (WAMZ) by 2004 whereby member countries would use a common currency in an attempt to promote regional integration. Evidence suggests that reduction in transaction cost as a result of a decrease or complete elimination of non-tariff barriers (NTBs) and a decrease in real interest rates in response to elimination of exchange rate differentials positively influence trade. The objective of this study is to quantify the effects of (a) a 7% real interest rate on capital and (b) zero NTBs within ECOWAS countries on cowpea trade in West and Central Africa in order to provide a measure of the potential impacts of a common monetary policy. The study applied a spatial and temporal price equilibrium (SPE) formulated as a four-period mixed complementary programming (MCP) in GAMS and solved using GAMS/PATH solver focusing on cowpea (Vigna unguiculata (L.) Walp) trade in the Nigerian Cowpea Grainshed (NCG) comprising Benin, Burkina Faso, Côte d'Ivoire, Ghana, Mali, Niger, Nigeria, and Togo in ECOWAS, and Cameroon, Chad, and Gabon in Central African Economic and Monetary Cooperation (CAEMC) using 1999/2000 as base marketing year. The results showed that if WAMZ results in reduced real interest rates within ECOWAS, the larger of the two monetary unions, consumers in the relatively larger coastal economies and producers in the smaller Sahelian economies would benefit while all others lose. However, net social welfare would increase by 0.19% over the base case of US$6.3 billion. Removing NTBs among countries in the larger trading bloc may alter the pattern of cowpea flows with total trade volume increasing by 3%, but inter-bloc trade decreases by about 8%. The net total regional social welfare would increase by 0.14%, or US$15 million, benefiting only consumers in importing countries and producers in exporting countries. The results emphasize the importance of specialization based on regional comparative advantage, but also draw attention to the need to devise ways to ensure acceptable welfare distribution among producers and consumers in line with policy objectives of the individual countries within the proposed WAMZ. Finally, this paper contributes to the literature on the application of spatial and temporal models incorporating both ad valorem tariffs and differential interest rates in developing economies.


Issue Date:
2003
Publication Type:
Conference Paper/ Presentation
PURL Identifier:
http://purl.umn.edu/22236
Total Pages:
31
Series Statement:
Selected Paper




 Record created 2017-04-01, last modified 2017-08-24

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