Guidime, Camille De ondji; Diaw, Adama; Biao, Ba hélémy
A icle
Exchange a es and ade balance in Wes A ican
economy and mone a y union coun ies: does he con en
o he aded goods ma e ?
Cogen Economics & Finance
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a es and ade balance in Wes A ican economy and mone a y union coun ies: does he con en
o he aded goods ma e ?, Cogen Economics & Finance, ISSN 2332-2039, Taylo & F ancis,
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Exchange a es and ade balance in Wes A ican
economy and mone a y union coun ies: does he
con en o he aded goods ma e ?
Camille De ondji Guidime, Adama Diaw & Ba hélémy Biao
To ci e his a icle: Camille De ondji Guidime, Adama Diaw & Ba hélémy Biao (2024) Exchange
a es and ade balance in Wes A ican economy and mone a y union coun ies: does he
con en o he aded goods ma e ?, Cogen Economics & Finance, 12:1, 2413963, DOI:
10.1080/23322039.2024.2413963
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DEVELOPMENT ECONOMICS | RESEARCH ARTICLE
Exchange a es and ade balance in Wes A ican economy and
mone a y union coun ies: does he con en o he aded
goods ma e ?
Camille De ondji Guidime
a
, Adama Diaw
b
and Ba h
el
emy Biao
c
a
Depa emen Economie, Uni e si
e de Pa akou, Pa akou, B
enin;
b
D
epa emen Economie, Uni e si
e Gas on Be ge de
Sain -Louis, Sain -Louis, S
en
egal;
c
D
epa emen Economie, Uni e si
e A icaine de D
e eloppemen Coop
e a i , Co onou,
B
enin
ABSTRACT
This pape analyzes he ole o he na u e o aded goods in he e ec o he eal
exchange a e on he ade balance in Wes A ican Economy and Mone a y Union
coun ies. Empi ically, he es ima ion o he pa ame e s o a dis ibu ed lag au o e-
g essi e model using he echnique o dynamic common co ela ion es ima o s is ca -
ied ou . The esul s show ha , i s ly, he low le el o in a-indus y ade com o
posi i e eal exchange a e e ec on ade balance. Howe e , WAEMU coun ies
expo aw ma e ials used by hei o eign ading pa ne s o manu ac u e p oduc s,
which WAEMU coun ies impo in u n; bu he aw ma e ials pe cen age used in he
manu ac u e o hose p oduc s is negligible o ha e a bene icial impac on ade bal-
ance. Secondly, o eign income le els a e less a o able o he coun ies’balance o
ade, as pa ne s ha e a p e e ence o inc easingly sophis ica ed goods ha WAEMU
coun ies do no p oduce. In e ms o economic policy implica ions, a cu ency
de alua ion would ha e an expec ed posi i e e ec i ade policy would encou age
he consump ion o goods and se ices con aining, in hei manu ac u ing p ocess, a
signi ican quan i y o hei expo ed p oduc s. This a icle con ibu es o he exis ing
economic li e a u e by aking in o accoun he cha ac e is ics o aded goods in he
analysis o he in luence o he eal exchange a e on he ade balance. A low con-
en o expo ed goods in he manu ac u ing p ocess o impo ed goods om a less
ad anced coun y could limi he ebalancing o i s ade balance ollowing a change
in he eal exchange a e.
IMPACT STATEMENT
The impo ance o his esea ch is o empi ically show he signi ican ole o he quan-
i y o domes ic goods con ained in he manu ac u e o impo ed goods in s udying
he ela ionship be ween exchange a e changes and he ade balance. The imple-
men a ion o a speci ic ade policy coupled wi h an exchange a e policy in a ou o
he ans o ma ion o p ima y p oduc s in o semi-manu ac u ed goods is impo an
o he economy o WAEMU coun ies.
ARTICLE HISTORY
Recei ed 11 May 2024
Re ised 30 Sep embe 2024
Accep ed 2 Oc obe 2024
KEYWORDS
Real exchange a e; na u e
o goods exchanged; ade
balance; ARDL model;
WAEMU coun ies
SUBJECTS
Economics and
de elopmen ; economics;
inance; A ican s udies
JEL
F10; F31; C23; 055
1. In oduc ion
Rebalancing he ade balance is an issue o scien i ic impo ance o esea che s and decision-make s.
Economic heo y es ablishes he basis o ex e nal ebalancing o he balance o paymen s h ough
de alua ion o dep ecia ion o he na ional cu ency. Depending on he e olu ion o he exchange a e,
coun ies’ ade balances imp o e o de e io a e (Dog u e al., 2019; Bahmani-Oskooee & A ab, 2017;
Bahmani-Oskooee, 1991; Magee, 1973). Fo small-scale economies, such as hose o he WAEMU, he
exchange a e plays an c ucial ole in mac oeconomic equilib ium unde he hypo hesis o Ma shall-
Le ne -Robinson c i ical elas ici ies (Keho, 2021b; Hunegnaw & Kim, 2017; Guillaumon & Guillaumon
CONTACT Camille De ondji Guidime [email p o ec ed] Depa emen Economie, Uni e si
e de Pa akou, Pa akou, B
enin
Supplemen al da a o his a icle can be accessed online a h ps://doi.o g/10.1080/23322039.2024.2413963.
ß2024 The Au ho (s). Published by In o ma UK Limi ed, ading as Taylo & F ancis G oup
This is an Open Access a icle dis ibu ed unde he e ms o he C ea i e Commons A ibu ion License (h p://c ea i ecommons.o g/licenses/by/4.0/), which
pe mi s un es ic ed use, dis ibu ion, and ep oduc ion in any medium, p o ided he o iginal wo k is p ope ly ci ed. The e ms on which his a icle has been
published allow he pos ing o he Accep ed Manusc ip in a eposi o y by he au ho (s) o wi h hei consen .
COGENT ECONOMICS & FINANCE
2024, VOL. 12, NO. 1, 2413963
h ps://doi.o g/10.1080/23322039.2024.2413963
Jeanneney, 1993). The esul is a mechanism whe eby he ade balance has a sho - e m de ici and a
su plus in he long e m wi h an adjus men coe icien : his phenomenon is e e ed o as he J-cu e.
Howe e , empi ical e i ica ion o he J-cu e phenomenon emains ela i ely obse ed (Ng e al., 2008).
Mo eo e , he mechanisms desc ibing he e ec s o he exchange a e on ade balance a e no ee o
unce ain y. The e o e, he exchange a e can ha e posi i e o nega i e e ec s on a coun y’s ade bal-
ance (Ayele, 2019; Dog u e al., 2019; Hunegnaw & Kim, 2017; Keho, 2021b). These con as ing esul s
can be obse ed pa icula ly in de eloping o less ad anced coun ies (Bahmani-Oskooee, 1991). Fo
WAEMU coun ies, he wo k o Keho (2021b) shows he posi i e e ec o he exchange a e on he ade
balance in he p esence o he e ogenei y in coun ies’g oss domes ic p oduc pe capi a. Howe e , he
na u e o he goods aded be ween coun ies, which could slow down o accele a e he expec ed e ec
o eal exchange a e e olu ion on he ade balance, is no aken in o accoun . In his a icle, we show
ha he na u e o he goods aded be ween WAEMU coun ies and hei ading pa ne s could limi
he posi i e e ec o he eal exchange a e on he balance o ade, gi en he ela i e ade depend-
ence o coun ies wi h in e media e incomes.
The aim o his a icle, he e o e, is o analyse he ole o he na u e o he goods aded be ween
WAEMU coun ies and hei ading pa ne s in he expec ed e ec o a change in he eal exchange
a e on hei ade balances. This a icle con ibu es o he heo e ical and empi ical deba e on he ela-
ionship be ween he eal exchange a e and he ade balance o de eloping coun ies, especially hose
o he WAEMU. WAEMU coun ies a e known o hei expo s o aw ma e ials and hei impo s o man-
u ac u ed p oduc s, made om aw ma e ials ha do no come su icien ly om hem. Taking in o
accoun he sha es o expo ed aw ma e ials ha a e con ained in he manu ac u ing o impo ed man-
u ac u ed goods imp o es he unde s anding o he e ec o he eal exchange a e on he ade bal-
ance o de eloping coun ies. Fu he mo e, a low sha e o expo ed goods in he manu ac u ing p ocess
o goods impo ed om a less ad anced coun y could limi o educe he expec ed ebalancing o i s
ade balance ollowing a a ia ion in he eal exchange a e. The es o he pape is s uc u ed as ol-
lows: s ylized ac s on ade and exchange a e e olu ion in WAEMU coun ies a e p esen ed in Sec ion
(2); a li e a u e e iew ou lines he e ec s o he eal exchange a e on he ade balance in Sec ion (3);
empi ical analysis o exchange a e e ec s on he ade balance is desc ibed in Sec ion (4); esul s o
econome ic es ima ions a e discussed in Sec ion (5); economic policy implica ions p esen ed as conclu-
sion in sec ion (6).
2. S ylized ac s abou in a-indus y ade and he eal exchange a e in he WAEMU
coun ies
2.1. E olu ion o ade
T ade be ween WAEMU coun ies has inc eased o e he las en yea s, ising om 6750.3 billion in 2006
o 17753.0 billion in 2020 (BCEAO, 2021,2006). O e all, impo s emain highe han expo s o goods
and se ices (C . Figu e 1). Mo eo e , he index o main expo ed p oduc s ose om 0.2% in 2019 o
1.8% in 2020 (BCEAO, 2021). Expo s o goods emain domina ed by gold (31.8%) and cocoa (16.8%), ol-
lowed by pe oleum p oduc s (6.8%), co on (4.8%) and cashew nu s (3.9%). Impo s ell om 8097.6 bil-
lion in 2006 o 18664.3 billion in 2020. The s uc u e o he Union’s goods impo s is domina ed mainly
by consume goods (33.7%), capi al goods (22.4%), in e media e goods (17.9%) and ene gy p oduc s
(15.1%) (BCEAO, 2021). In sho , expo s a e s ill domina ed by p ima y p oduc s, and impo s by manu-
ac u ed goods. The Union’s ading pa ne s a e mainly he Uni ed S a es, Asian coun ies, Eu ope and,
o a lesse ex en , ECOWAS and A ican coun ies.
2.2. T ade balance and eal exchange a e
WAEMU coun ies a e expe iencing a s uc u al imbalance in hei ade balance, wi h he excep ion o
C^
o e d‘I oi e (BCEAO, 2021). The eal exchange a e is ela i ely co ela ed wi h he ade balance o
UEMOA coun ies (C . Figu e 1). C^
o e d‘I oi e did no expe ience a ela i e decline in i s ade balance
o e he s udy pe iod.
2 C. D. GUIDIME ET AL.
In ac , he ade balance de ici o WAEMU coun ies is wo sening o e ime, eaching -6.4% o GDP
in 2021, compa ed wi h −5.1% in 2020 and −5.7% in 2019 (BCEAO, 2022). This de ici in he union’s
ade balance has pe sis ed since 1970. These ends can be explained in pa icula by he in e na ional
economic conjunc u e, which in luences he economies o WAEMU coun ies wi h ega d o he high
dependence o hei impo s on he ou side wo ld, and he e olu ion o aw ma e ial p ices and expo
e enues. I ’s depended also by he e olu ion o eal exchange a e.
The eal exchange a es o he WAEMU coun ies ha e unde gone a h ee-phase e olu ion since 1994
( he yea hei common cu ency was de alued). F om 1994 o 2002, he e olu ion is inc easing wi h a
plus a he peak o 6.6. A e 2002, he eal exchange a e expe ienced a decline un il 2010 hen s a ed
o app ecia e again un il 2020 e en i he le el emains lowe han ha o 2002 (C . Figu e 2).
The eal exchange a e seems o dec ease wi h he ype o goods aded be ween ading pa ne s.
WAEMU coun ies impo manu ac u ed goods whose inpu s do no come essen ially om hei expo s
o aw ma e ials. The sensi i i y o he ade balance ollowing he mo emen o he eal exchange a e
would be low o coun ies wi h a low le el o in a-indus y ade (Kha oubi, 2011) because no na ional
indus y can easily and quickly eplace impo s which ha e become mo e expensi e because o de alu-
a ion. In ui i ely and ollowing his idea, coun ies specialized in he p oduc ion o aw ma e ials canno
ha e high in a-indus y ade.
3. Li e a u e e iew
This session p esen s heo e ical and empi ical iews o he ela ionship be ween he exchange a e and
he ade balance. I shows how he na u e o aded goods de e mines he e ec o exchange a e
mo emen s on he balance o ade by aking in o accoun hei manu ac u ing inpu s.
Figu e 2. Real exchange a es in WAEMU coun ies.
Sou ce: Au ho s’calcula ions.
Figu e 1. S a is ical ela ionship be ween he eal exchange a e and he ade balance o WAEMU coun ies om 1994
o 2020.
Sou ce: Au ho s’calcula ions.
COGENT ECONOMICS & FINANCE 3
3.1. C i ical elas ici y app oaches and he J-cu e phenomenon
A easoning ha goes back o classical economis s’s a es ha a change in he eal exchange a e
imp o es he compe i i eness-p ice o he na ional economy in he ollowing ways: (i) highe impo p i-
ces in domes ic cu ency –leading o lowe impo s –and (ii) lowe expo p ices in o eign cu ency –
leading o inc eased expo s. Fo he balance o ade o imp o e, he e ec o inc easing expo s and
dec easing impo s mus be su icien ly s ong o he esul ing balance o o se he e ec o de e io a ion
in he e ms o ade (Magee, 1973). The Ma shall-Le ne -Robinson c i ical elas ici y hypo hesis is he e o e
in oduced, which s a es ha , as long as he sum o expo and impo elas ici ies is g ea e han uni y, a
de alua ion o he na ional cu ency will imp o e he balance o ade in he long e m (Bahmani-
Oskooee, 1991). Fu he mo e, he p ocess o he heo e ical posi i e e ec o de alua ion on he balance
o ade is nuanced h ough he J-cu e; an empi ical obse a ion which shows ha he balance o ade
ini ially becomes mo e in de ici , hen becomes p og essi ely in su plus again in a second phase.
Hima ios (1985), c i icizing Miles’a icle (1979), shows ha he eal exchange a e is s ill well sui ed o
unde s anding he e ec o a de alua ion o he na ional cu ency on he balance o ade. He again speci-
ies he ade balance equa ion and emphasizes he empo al na u e o he shi in he eal exchange a e
needed o in luence he ade balance. Howe e , i should be no ed ha a signi ican numbe o empi ical
analyses ha e been ca ied ou , wi hou any absolu e ag eemen on he di ec and posi i e e ec o a
change in he exchange a e on he balance o ade. I i has been shown ha o small coun ies wo
successi e de alua ions a e necessa y o hope o a posi i e e ec on he balance o ade (P akash and
Mai i, 2016), i emains o be shown ha he quan i y o goods impo ed by small coun ies, con aining in
hei manu ac u e a gi en le el o p oduc s expo ed ups eam by he same small coun ies, is a key ac o
in he expec ed e ec o he exchange a e on he ade balance: his is wha ou pape is conce ned
wi h. To he bes o ou knowledge, he e is no esea ch on he ole o he na u e o ade be ween coun-
ies in he e ec o he exchange a e on he ade balance o WAEMU coun ies.
3.2. Key ac o s in he impac o exchange a es on he ade balance
In de eloped coun ies, exogenous economic shocks can in luence he expec ed e ec o a change in
he eal exchange a e on he ade balance (Bahmani-Oskooee & Zhang, 2013; Hunegnaw & Kim, 2017;
Kang & Dagli, 2018). In eme ging coun ies, he a o able e ec o he eal exchange a e on he ade
balance is obse ed in he long e m, while in he sho e m, he ade balance appea s o de e io a e
(Bahmani-Oskooee e al., 2019; Se da & Hakan, 2017; P akash & Mai i, 2016; Baha umshah, 2001). Thus,
i eme ges ha he ime i akes o he e ec s o an exchange a e change o be ealized de e mines
he di e ence be ween he sho - e m and long- e m esul s o he expec ed e ec s (Aca , 2000). On he
o he hand, depending on he coun y’s economic s a us –leas de eloped, de eloped and de eloping
coun y – he long- e m ou come is mixed (Ayele, 2019). In less ad anced and de eloping coun ies, he
e ec s ound ela e o he conside a ion o he empo al ac o , sho - e m and long- e m, (Bahmani-
Oskooee e al., 2019), he ansmission mechanism o he exchange a e e ec on he ade balance
(P akash & Mai i, 2016) and he conside a ion o eal exchange a e ho izons. Fu he mo e, Keho (2021a)
pe o ms a he e ogeneous panel analysis and inds ha he ade balance is nega i ely in luenced by
domes ic and o eign p oduc s o e he pe iod 1975–2017, while i is posi i ely in luenced by he eal
exchange a e in he long e m in UEMOA coun ies. In he sho e m, he e is no de e io a ion in he
ade balance. F om a me hodological poin o iew, i would be use ul o ake in o accoun he he e o-
genei y o he coun ies in a panel in o de o assess di e en ly he e ec s o he eal exchange a e on
he ade balance. Mo eo e , an app ecia ion o he eal e ec i e exchange a e wo sens C^
o e d‘I oi e’s
ade balance, while a dep ecia ion imp o es i o e he pe iod 1975–2017 (Keho, 2021b). Howe e , he
di e ence in econome ic ools used in he wo k could explain he di e ence in esul s. Ne e heless,
coun y speci ici ies and economic dynamics, pa icula ly he deg ee o in a-indus y ade wi h ading
pa ne s, could in luence he expec ed e ec o he eal exchange a e on he balance o ade. In add-
i ion, WAEMU coun ies a e ela i ely he e ogeneous in he di e si ica ion o he p oduc s hey expo
(Keho, 2021a). Fu he mo e, he di e ence in e ec s may s em om he na u e o aded p oduc s
4 C. D. GUIDIME ET AL.
(Bu c¸ak & Payaslıo
glu, 2016; Dog u e al., 2019; Kha oubi, 2011), indus ial in eg a ion be ween ading
coun ies and coun y dependence in he na u e o expo ed p oduc s.
Two cases a e iden i ied: he e ec o he eal exchange a e on he ade balance is ampli ied when,
he pa o he goods and se ices impo ed by a coun y om i s ading pa ne con ain, o a signi i-
can ex en in hei manu ac u e, he goods and se ices expo ed by he la e o he ading pa ne is
high. The second case is he opposi e phenomenon. In addi ion, he de elopmen o ade is linked o
indus ial de elopmen , which inc eases he olume o ade (some imes in p oduc s o he same ype).
This inc eases subs i u abili y be ween he ypes o impo ed and expo ed goods, making he ade bal-
ance mo e sensi i e o mo emen s in he eal exchange a e. Fu he mo e, coun ies impo and expo
di e en ypes o goods acco ding o hei e ealed compa a i e ad an ages. Thus, when he no malized
sum o ade balance de ia ions o i ms in an indus y ela i e o o al ade is high, his would mean
ha he coun y is ading di e en ypes o goods wi h i s pa ne s. Consequen ly, he sensi i i y o he
ade balance o eal exchange a e mo emen s is low o coun ies wi h a low le el o in a-indus y
ade, as no domes ic indus y can easily and quickly eplace impo s ha ha e become mo e expensi e
ollowing a de alua ion (Kha oubi, 2011). In ui i ely, and ollowing his idea, coun ies specializing in
he p oduc ion o aw ma e ials canno ha e high in a-indus y ade. In a-indus y ade in p oduc s
would be low, and he e o e he e ec o a change in he eal exchange a e could no signi ican ly
a ec he balance o ade in he sense o imp o ing i .
4. Me hodology
4.1. Model speci ica ion and a iables desc ip ion
The econome ic modeling de i es om he wo k o Bahmani-Oskooee (1991), Hunegnaw and Kim
(2017) and Keho (2021b) and leads o he cons uc ion o a delayed au o eg essi e dis ibu ion model
by conside ing he exp ession o he ade balance as ollows:
ln TB
ðÞ
i ¼ai þbln RERi þ ln Ydi þdln Y i þei (1)
Wi h TB,RER,Yd,Y ep esen ing espec i ely he ade balance, eal exchange a e, and domes ic p o-
duc ion by alue and o eign p oduc ion by alue. The equa ion is in log-linea izing.
Fu he mo e, aking in o accoun he ole o con en o he aded goods on he e ec s o he
exchange a e on he ade balance, he model o be es ima ed is as ollows:
ln TB
ðÞ
i ¼ai þbln RERi þ ln Ydi þdln Y i þ/ln RERi IITi þei (2)
whe e is he ade balance o coun y "i" a da e " ". The ade balance is calcula ed as he ela ion
be ween coun ies’expo s and impo s o a oid nega i e sign o he log exp ession (Bahmani-Oskooee
e al., 2019). RERi is he eal exchange a e o coun y i agains he cu encies o i s ading pa ne s.
The eal e ec i e exchange a e con ols a coun y’s ex e nal compe i i eness. The in e ac ion be ween
he eal exchange a e and ade dependency allows us o unde s and how he ypes o expo ed e sus
impo ed goods a ec he expec ed e ec o a change in he eal e ec i e exchange a e on he ade
balance. We use he G ubel and Lloyd (1975) index
1
as a p oxy o cap u e he sha e o p oduc expo ed
by a WAEMU coun y, con ained in he manu ac u e o p oduc s impo ed by his coun y. And his
sha e alued by he eal exchange a e is measu ed by he p oduc be ween he eal exchange a e and
he in a-indus y ade index. The expec ed sign o he in e ac ion be ween he eal exchange a e and
he in a-indus y ade index will be nega i e i he deg ee o in a-indus y ade is low. The e ec s o
a change in he eal exchange a e a e obse ed o e ime. The e o e, Pesa an e al. (2001) ep esen an
ARDL- ype equa ion wi h e o e m co ec ion o unde s and long and sho e m dynamics in a con ex
whe e a iables ha e an o de o in eg a ion be ween I(0) and I(1). On he o he hand, se e al p e ious
wo ks use he ARDL- ype coin eg a ion analysis app oach o he de imen o e o -co ec ion ec o
au o eg ession analyses on la ge samples. Bahmani-Oskooee and A ab (2017) indica e ha he ARDL
app oach makes i possible o simul aneously assess he sho - e m e ec s – h ough he coe icien s o
he exogenous a iables in i s di e ence, and he long- e m e ec s h ough he coe icien s –o he
in luence o he eal exchange a e on he ade balance (C . Equa ion (4)). The equa ion is as ollows:
COGENT ECONOMICS & FINANCE 5
Dln TBi ¼aiþX
n
j¼1
x0iDln TBi, −jþX
m
j¼0
x1iDln RERi, −jþX
m
j¼0
x2iDln Ydi, −jþX
m
j¼0
x3iDln Y i, −j
þqECTi, −1þgln TBi, −1þbln RERi, þ ln Ydi, þdln Y i, þei
(4)
In o de o conside he cons ain ha he deg ee o in a-indus y ade could pose on he e ec o
changes in he eal exchange a e, Equa ion (5) is es ablished:
Dln TBi ¼aiþXn
j¼1x0iDln TBi, −jþXm
j¼0x1iDln RERi, −jþXm
j¼0x2iDln Ydi, −jþXm
j¼0x3iDln Y i, −j
þXm
j¼0x4iDln RERi, −jIITi, −jþqECTi, −1þgln TBi, −1þbln RERi, þ ln Ydi, þdln Y i,
þ/ln RERi IITi þei
(5)
Wi h n 1; m 0, maximum lag o he model. Dis he i s di e ence ope a o . a,xa e he sho - un
coe icien s and g,b, ,d,/a e he long- un coe icien s o he model. ECT he speed o adjus men
be ween sho - e m and long- e m dynamics; a nega i e and s a is ically signi ican sign is expec ed. eis
he e o e m.
4.2. Technical es ima ion
The pa ame e s o Equa ion (7) a e es ima ed o unde s and he sho and long e m dynamics o he
a ea as a whole, as well as o he coun ies making up he a ea. The Im, Pesa an e al. (2001) uni oo
es is applied o s udy he s a iona y p ope ies o he model’s a iables. The dis ibu ed au o eg essi e
in delay (ARDL) model de eloped by Pesa an (2006) is used o s udy sho and long e m ela ionships in
he e en ha he a iables ha e an in eg a ion o de I (0) and I (1). To assess a coin eg a ing ela ion-
ship be ween a iables, he es o Ped oni (2004,2000) is applied. The es conside s he he e ogenei y
be ween he panel’s c oss-sec ional uni s ( aking in o accoun he p esence o di e si ica ion in he
coun ies’economies). Thus, unde he al e na i e hypo hesis, he e is a coin eg a ing ela ionship o
each panel uni . Coin eg a ion ec o s a e a ely iden ical om one panel uni o he nex (Hu lin &
Mignon, 2007), which means ha c oss-sec ional dependency be ween e o e ms mus be aken in o
accoun . Taking in o accoun he he e ogenei y o coe icien s es ima ed om panel da a is becoming
inc easingly demanding (Chudik & Pesa an, 2015). The e a e o en unobse ed dependencies be ween
panel uni s, and igno ing hese leads o au o-co ela ion o he e o e m and biased leas squa es
eg ession esul s (Kao & Liu, 2000). A c oss-sec ional panel dependence es is p oposed by Pesa an
(2015) and (Chudik & Pesa an, 2015). Di zen (2018) shows ha Mean G oup es ima o s a e unbiased and
consis en . On he o he hand, when he ARDL model pa ame e s sugges a c oss-sec ional dependence
o he panel wi h he p esence o he e ogenei y, i is o in e es o use he c oss-sec ional Mean G oup
es ima o (CS-ARDL Mean G oup es ima o ) o Pesa an (2015) and Chudik and Pesa an (2015) p o-
g ammed by Di zen (2018) unde he name x dcce2. Fo mally, he ollowing model es ima o s a e p o-
posed by:
yi; ¼kiyi, −1þbixi, þui, (6)
hence
ui, ¼c0
i þei, (7)
Wi h U
i,
, he e o e m including he common unobse able ac o , he he e ogeneous ac o p esen
and he whi e noise. The he e ogeneous coe icien s a e dis ibu ed a ound a common mean bi¼bþ
i, i IID(0, X ) and ki¼kþ1i, 1iIID(0, X1).
To es ima e he pa ame e s, (Chudik e al., 2016) p opose wo me hods o es ima ing he coe icien s:
he c oss-sec ionally augmen ed es ima o ARDL (CS-ARDL) and he c oss-sec ionally augmen ed and dis-
ibu ed lag es ima o . The CS-ARDL es ima o di ec ly es ima es he long- un coe icien s, by adding he
explana o y a iables in di e ence and hei lags. The CS-ARDL i s es ima es he sho - e m coe icien s,
hen calcula es he long- e m coe icien s. Op imal lags a e hose wi h a high equency o e he whole
6 C. D. GUIDIME ET AL.
panel. In o he wo ds, using he un es ic ed model and an in o ma ion c i e ion, decide on he choice
o lags o each coun y by a iable, hen choose he mos common lag o each a iable o ep esen
he lags o he model. He e, we ob ain ARDL (1,0,0,0) a e es ing. The pe o man es p og am o
Ped oni (2000) which in oduced he panel o dina y leas squa es dynamics (PDOLS) es ima ion ech-
nique, is un o obus ness o esul s.
4.3. Da a
To examine he e ec s o changes in he eal exchange a e on he ade balance o WAEMU coun ies,
ime-se ies da a om 1994 o 2020 a e p o ided by Wo ld De elopmen Indica o s and he Cen al Bank
o Wes A ican S a es (BCEAO). Only coun ies whose da a a e a ailable a egula equency a e
included, namely Benin, Bu kina Faso, C^
o e d‘I oi e, Mali, Nige , Senegal and Togo. The dependen a i-
able s udied is he ade balance, measu ed by he a io be ween expo s and impo s (Hunegnaw &
Kim, 2017; Keho, 2021b). An inc ease in his a io e lec s an imp o emen in he ade balance, and a
de e io a ion in he opposi e case. Domes ic and o eign incomes a e app oxima ed by he g oss domes-
ic p oduc s o WAEMU coun ies and he en (10) main ading pa ne s on he basis o aded olumes.
The eal e ec i e exchange a e is ob ained by ans o ming he nominal exchange a e om he
BCEAO. The cons uc ion o he eal e ec i e exchange a e h ough he in e session o in a-indus y
ade is based on da a on expo s and impo s o goods and se ices om he p ima y, seconda y and
e ia y sec o s be ween coun ies and hei en (10) main ading pa ne s. WAEMU coun ies ha e been
expo ing aw ma e ials since independence in he 1960s, and impo ing he end p oduc s esul ing
om hei expo s. They de alued hei cu encies in 1994, hoping o a a ou able e ec on hei ade
balance. This e ec canno be assessed wi hou aking in o accoun he deg ee o in eg a ion o hei
expo s wi h impo ed p oduc s. I is he e o e necessa y o c oss- e e ence he e ec i e exchange a e
wi h he deg ee o in a-indus y ade wi h he main ading pa ne s. Table 1 desc ibes he obse a-
ions by coun y and a panel le el. The co ela ion coe icien s be ween he eal e ec i e exchange a e
and he ade balance a e posi i e and s a is ically signi ican o Benin, Senegal and Togo, bu s a is ic-
ally insigni ican o C^
o e d‘I oi e, Mali and he panel. Fo Bu kina Faso and Nige , he co ela ion coe i-
cien s a e nega i e bu no signi ican . As o he co ela ion be ween he ade balance and he eal
e ec i e exchange a e c ossed wi h he deg ee o in a-indus y ade, i is nega i e and s a is ically sig-
ni ican o Benin, Bu kina-Faso and he panel, bu no signi ican o Mali and Nige . The co ela ion is
posi i e and s a is ically signi ican o Senegal, bu no signi ican o Togo and C^
o e d‘I oi e o e he
pe iod 1994–2020 (C . Table A1,Supplemen a y Appendix 1). The he e ogenei y ex shows ha he
space s udied is no homogeneous in e ms o economic dynamics and hei ade balances (C . Figu e
A1 in Supplemen a y Appendix). Which co obo a es he esul o k
eho (2021b).
5. Resul s and discussion
5.1. Da a
The ollowing Table 2 shows he uni oo es esul s.
Table 1. Mean alues o a iables by coun y and co ela ion coe icien .
Coun ies ln b lnyd lny ln e ln e ii ґÚ
B
enin −1.27 22.82 27.36 6.35 6.60 0.58−0.63
Bu kina aso −0.79 22.75 26.80 6.33 6.34 −0.23 −0.94
C^
o e d’I oi e 0,30 24.26 28.47 6.33 5.91 0.37 0.12
Mali −0.45 22.93 27.43 6.32 6.22 0.26 −0.33
Nige −0.53 22.60 27.80 6.33 6.13 −0.10 −0.30
S
en
egal −0.98 23.31 28.56 6.31 6.22 0.400.50
Togo −0.57 21.84 26.70 6.348 6.30 0.390.25
WAEMU −0.61 22.93 27.59 6.33 6.25 0.07 −0.59
No e. ln b, lnyd, lny , ln e ii a e ade balance, domes ic and o eign income, eal exchange a e, eal exchange a e associa ed wi h he
le el o in a-indus y ade, espec i ely. Ґand Úa e espec i ely co ela ion coe icien s be ween ade balance and eal exchange a e and
be ween ade balance and eal exchange a e associa ed wi h he le el o in a-indus y ade. Da a a e sample a e ages.
Sou ce: Au ho s’calcula ions.
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