Poverty and the CFA Zone

1
Poverty and the CFA Zone

• by
• Jean-Paul Azam

2
Three Main Issues

• Impact of 1994 devaluation on poverty
• Impact of belonging to the CFA zone on the growth
  of incomes of the poor
• Impact of monetary policy on relative prices of
  food

3
The 1994 Devaluation Shock

• Expectations were that it would reduce poverty by
  changing the internal terms of trade in favor of
  agriculture, where most of the poor are.
• This textbook approach is not appropriate to West
  Africa

4
Main Findings (i)

• The devaluation increased urban poverty
• Formal sector wages were cut by 40
• Less jobs for the little brothers in the
  informal sector, as the richer formal sector
  employees are the main investors in the informal
  sector (stratified labor market)
• Formal sector employees ran down their assets,
  slowing down job creation in the informal sector

5
Main Findings (ii)

• Without relieving rural poverty
• Short-run fall in real agricultural prices due to
  fall in urban demand for food
• Slow down rural-urban migration
• More favorable impact in the longer run (a
  decade) in some countries thanks to faster growth
  (Senegal, Benin may be)

6
Long-Run Growth and Poverty(i)

• The determinants of growth in the WAEMU and CEMAC
  are no different from other developing countries
  (Bleaney-Nishiyama, chap. 8)
• No WAEMU nor CEMAC dummies
• No SSA dummies
• After controlling for initial income (-) and
  income share of the poor (-), openness (), life
  expectancy (), tropical climate (-), government
  saving (), primary commodity exports (-),
  ethno-linguistic diversity (),

7
Long-Run Growth and Poverty (ii)

• Same result for growth in the incomes of poorest
  quintile
• No WAEMU nor CEMAC dummies
• No SSA dummies
• After controlling for initial income (-) and
  income share of the poor (-), openness (), life
  expectancy (), tropical climate (-), government
  saving (), primary commodity exports (-),
  ethno-linguistic diversity (),

8
Note

• Notice that the Bleaney-Nishiyama result, about
  the growth of the incomes of the poorest quintile
  is in fact talking about the change in absolute
  poverty
• Watts index

9
Impact on Real Food Prices (i)

• High volatility of food prices in response to
  large changes in monetary policy instruments,
  especially for low-income households in Mali and
  Senegal and money supply shocks (M0 and interest
  rate)
• Different short-run impacts of money supply per
  country, disappear after 12 months
• No lasting effects of interest rate changes,
  significant short-run effects for Mali and Togo.