Will the Euro Create a Bonanza for Africa?

Daniel Cohen and Nicolai Kristensen

No 2304, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: This paper considers the impact of the Euro in Sub-Saharan Africa, looking at the transmission channels through which the Euro could affect the economies in the region and at the risks and opportunities for Sub-Saharan African countries. In particular, the paper looks into effects from the trade channel through changes in the European economic activity and real exchange rate. Because of a relatively low-income elasticity with respect to primary commodities, which is what Sub-Saharan Africa primarily exports, any increase in activity in Europe is deemed to have an inferior impact on Africa. Exchange rate regimes and geographical trade patterns points to large differences in the exposure to changes in the real exchange rate. Capital flows to Sub-Saharan Africa can be affected via changes in foreign direct investments (FDI) or via portfolio shifts. The former is not expected to be under much influence from changes in competitiveness in Europe, and therefore no significant effect on FDI is to be expected. Portfolio diversification can potentially increase by a large amount. Realization of the increased potential is not to be expected because of severely underdeveloped domestic capital markets, which underlines the necessity for Sub-Saharan African countries to strengthen their financial integration with global markets. Financial implications, such as affects on the banking system, and debt and reserve management, vary across countries but are in general expected to be of limited magnitude. Thus, at this stage it is difficult to conclude that the Euro will result in an important macroeconomic impact in Sub-Saharan Africa unless the launch of the Euro becomes a tool of a major policy shift, 'Euroization' of the continent, which is itself unlikely at the current stage.

Keywords: Africa; Euro; Foreign Direct Investment (search for similar items in EconPapers)
JEL-codes: F21 F34 (search for similar items in EconPapers)
Date: 1999-11
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
http://www.cepr.org/active/publications/discussion_papers/dp.php?dpno=2304 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Will the Euro create a bonanza for Africa? (1999)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:2304

Ordering information: This working paper can be ordered from
http://www.cepr.org/ ... ers/dp.php?dpno=2304

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().